Why Interest Rate Cuts Might Not Have the Effect You Think

1. Monetary policy works with long and variable lags, a concept introduced by Milton Friedman. 2. The Federal Reserve now communicates more frequently, allowing financial markets to anticipate and react to changes in interest rates. 3. Companies and households may not feel the immediate impact of interest rate changes due to fixed interest rates. 4. The full effect of monetary policy changes may only be seen in the economy long after they happen. 5. The impact of interest rate changes on household consumption does not seem to be significantly affected by fixed mortgage interest rates.

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