Why Fed Rate Increases Are Hitting All at Once

(Bloomberg Opinion) -- Everyone knows that the effects of interest-rate increases come with a time lag. It’s tempting to think it’s like pressing the brake in a car: Central banks push the pedal a bit, then a bit more and eventually the economy steadily starts to slow down.

The turmoil in banking this week shows this is the wrong analogy. Monetary policy is more like an elastic band: You can pull on it for ages and nothing seems to move until suddenly the other end comes pinging right at you.

This realization will have implications for what the Federal Reserve should do next. But it also underscores something else: The supposed choice between worrying about inflation or financial stability is false. Banks are still a crucial channel for monetary policy to be transmitted to the economy through their lending. At a certain point, bank stability is monetary policy. The US has reached a moment where monetary tightening is accelerating like a slingshot through the banking system...