Milton Friedman, the Nobel Laureate economist and father of monetary theory, coined the phrase ‘long and variable lags’ to describe the delayed effects of monetary policy. He recognized that changes in interest rates and the money supply take time to impact the economy and can do so in unexpected ways.
Friedman is also credited with the Fool in the Shower metaphor to illustrate the concept – When a fool in the shower realizes that the water is too cold, they turn on the hot water. However, the hot water takes a while to arrive, so the fool simply turns the hot water up all the way, eventually scalding himself.
In March, the U.S. economy experienced a bit of unanticipated ‘scalding’ with the precipitous failures of Silicon Valley Bank and Signature Bank.
In our Q1 Market Update, we discuss what happened, the Fed’s response, and what it all could mean for investors, consumers, businesses, and the economy as a whole.