Today the Fed released this statement from their latest minutes “The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, although the extent of these effect remained uncertain”. But here’s the thing: the market could be underestimating how long the lag effect is. Typically it’s between 12 and 24 months. However, with an extra $2+ Trillion in (perhaps wasteful) government handouts, that has softened the blow dealt from higher rates. But make no mistake – the lag effects from 500 bps of tightening will come – it’s just longer than expected.