Milton Friedman’s “long and variable lag,” explained

If you’ve been tuning in for one of 2023’s hottest shows — Federal Reserve press briefings — you may have noticed an oft-repeated phrase on the Fed chair’s lips: “long and variable lag.”

“It’s sort of standard thinking that monetary policy affects economic activity with long and variable lags,” Fed Chair Jerome Powell said in June. But the idea that the time it takes for the actions of central bankers — like raising interest rates — to work their way through the economy is “long and variable” has not always been “standard thinking.”  

“Generally, the term is associated with Milton Friedman,” said Peter Ireland, a professor of economics at Boston College. Milton Friedman, the conservative University of Chicago economist and Nobel Prize winner, started talking about long and variable lags in the late 1950s.

“The long and variable lag is one of these nostrums that’s passed into conventional wisdom, but was not conventional wisdom when Friedman started talking about it,” said Jennifer Burns, a professor of history at Stanford University and author of a new biography of Friedman. “There’s a way in which we can miss how revolutionary a lot of what he said was because it’s just been incorporated into like, well, ‘This is stuff that everybody knows.’”

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