Fed rate hikes beginning to pinch economy

So far, his wish has not come true, although some analysts now think the Fed might pause at its next policy-setting meeting Aug. 8 or, if not, then at the following meeting Sept. 20.

Greg Miller, chief economist for Suntrust Banks in Atlanta, notes that Fed rate hikes operate with a long lag of six to 12 months, and they are cumulative. While each individual move might not make much difference, over time the weight of the increases puts growing pressure on the economy.

“It's very difficult for the Fed to ever identify the perfect last move,” Miller said. “It's almost inevitable they will either slightly undershoot or slightly overshoot that mark.”

He said the cumulative impact of the Fed's two years of rate hikes are showing up “fairly consistently” across many economic sectors dependent on consumer spending including housing and automobiles. While consumer confidence rose in June, buying intentions for homes and other big-ticket items are waning. Only 5.4 percent of respondents in the latest survey from The Conference Board said they expect to buy a car in the next six months, down from 6.8 percent just two months earlier. Only 0.5 percent expect to be buying a home, compared with 0.7 percent two months earlier.

Mark Zandi, chief economist at Moody's Economy.com, said the Fed's rate hikes clearly are being felt in the housing market, but the well-known lags in monetary policy mean more is yet to come.

“I think the effects of all this have yet to be felt,” he said. “There are long lags between Fed tightening and the impact. Even if they stopped tightening now, the ill effects would continue through the end of the year and into next year.”

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