These Are All the Fed Funds Rate Hikes/Cuts Since 1990

In the world of finance, understanding the Federal Reserve’s interest rate policy is like deciphering the lines of an ever-changing poem.

The Federal funds rate history might not be as thrilling as a Mark Twain novel, but it carries significant weight in our economic lives.

So, why did the Federal Open Market Committee (FOMC) decide to raise the fed funds target rate in 1994, and how does it relate to today’s economic landscape?

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➤ How Does the Fed Make These Choices?

The Federal Reserve adapts the federal funds target rate based on the economy’s pulse. They use this lever to steer the ship, aiming for two main goals: keeping prices steady and maximizing employment.

It’s like adjusting the thermostat at home when things get too hot or too cold.

But the Fed doesn’t make these decisions in isolation. They consider a smorgasbord of economic indicators, from GDP and consumer spending to major global events like financial crises, pandemics, and even terrorist attacks.

The Fed isn’t just a bunch of economists in a room; they’re finely tuned to the winds of politics and public opinion.

Understanding the Data

The tables below chronicle the moments when the FOMC tinkered with interest rates, showing the size of each change in basis points (bps), which are like tiny percentage points.

It’s like adjusting the fine-tuning on your music system. Just remember, 1% equals 100 basis points, so you can figure out the rest.

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➤ Federal Funds Rate History

2022-2023: Battling Inflation

As recently as the beginning of 2022, the Fed had interest rates close to zero and was buying tons of bonds to bolster the economy.

This was happening despite stubbornly high inflation. Then, the Fed decided it was time to tackle inflation head-on.

In the last 16 months, they’ve cranked up rates by over 5 percentage points, helping to cool down skyrocketing prices that were denting everyone’s wallets.

2020: Coping with Covid-19

In January 2020, the Federal Open Market Committee (FOMC) stated that the labor market was robust, and economic activity was growing at a moderate rate. However, just a few days later, the world was plunged into the Covid-19 recession as the pandemic began its global spread.

As Covid-19 rapidly spread, public health officials worldwide recommended lockdowns to curb the virus and alleviate the strain on healthcare systems. In April 2020 alone, approximately 20.5 million jobs were lost, causing the unemployment rate to soar to 14.7%.

In response to the crisis, the FOMC held two emergency meetings in March 2020, implementing significant rate cuts. These actions brought the federal funds target rate range down to zero to 0.25%.

While the economy technically began to recover by May 2020, marking one of the shortest recessions on record, the repercussions of the measures taken to combat the Covid-19 outbreak continue to be felt today.

2019: Dealing with Trade Wars

In 2019, trade tensions between the U.S. and China were brewing.

The Fed was concerned about the potential impact on the economy and decided to make three interest rate cuts in what they called a ‘mid-cycle adjustment.’

These moves, like fine-tuning a car engine, helped steer the economy back on track.

2015-2018: Returning to Normal

Following the global financial crisis in 2008, the Fed held interest rates near zero for years. It wasn’t until 2015 that they began cautiously raising them again.

By then, the economy had shown signs of improvement. These moves marked a slow return to a more ‘normal’ monetary policy.

2008: Coping with the Great Recession

The Great Recession struck in 2008, plunging the world into economic turmoil.

The Fed reduced interest rates to near-zero levels and introduced a novel concept called quantitative easing to stimulate the economy.

The measures, like a surgeon’s precision, aimed to mend the shattered financial system and bring back jobs.

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2007: Housing Market Woes

In 2007, the housing market bubble was bursting, and unemployment was rising.

To cushion the blow, the Fed started lowering rates, marking the beginning of a series of reductions that saw rates slashed by 2.75 percentage points in under a year.

It was like applying a soothing balm to a painful wound.

2005-2006: Handling the Housing Boom

Before the housing market crashed, the U.S. was in the midst of a housing boom.

The Fed tried to cool things down by raising interest rates 17 times over two years. It’s like they were gently putting the brakes on an overheating car engine.

2002-2003: A Fragile Recovery

After the dot-com recession, the economy was recovering, but the Fed was concerned it wasn’t gaining enough momentum.

They made rate cuts to boost growth. Think of it as adding some extra fuel to the economic engine.

2001: Dot-Com Bust and 9/11

The dot-com bubble burst in 2001, leading to a stock market crash and a recession.

The Fed responded with multiple rate cuts, offering a lifeline to a struggling economy. It’s like giving first aid to an injured hiker.

1999-2000: Dot-Com Boom

During the late 1990s and early 2000s, the stock market was soaring thanks to the dot-com boom.

The Fed started raising rates to keep inflation in check, which was like a firefighter trying to prevent a forest fire from spreading.

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1998: Global Currency Crisis

In 1998, the Fed made rate cuts in response to global economic tensions, especially in Asia and Russia.

They wanted to shield the U.S. from the turmoil brewing overseas. It’s like preparing your home for a storm by reinforcing the walls.

1997: A Gentle Brake Tap

In 1997, inflation was creeping up, and the Fed applied the brakes gently to keep it in check. It’s like a pilot adjusting the throttle to maintain a smooth flight.

1995-1996: A Mid-Cycle Tune-Up

The 1990s were known for their rapid economic growth, but the Fed performed three rate cuts during the mid-1990s to ensure the economy stayed on track. Think of it as a pit stop to fine-tune a race car.

1994-1995: A Soft Landing

In the mid-’90s, the Fed raised rates significantly to achieve a ‘soft landing.’ They wanted to cool off an overheating economy without causing a crash. It’s like an expert driver gently braking on a slippery road.

1990-1992: The Gulf War Recession

The Gulf War recession hit in the early ’90s, and the Fed responded with a series of rate cuts to get the economy back on its feet. It was like a lifeguard diving in to rescue a struggling swimmer.

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➤ Federal Funds Rate History FAQ

What is the Federal Reserve?

The Federal Reserve, officially known as the Federal Reserve System, is the central bank of the United States.

Established in 1913 through the Federal Reserve Act, it encompasses 12 regional divisions across the nation, including a central governing board and the Federal Open Market Committee (FOMC).

What does the Federal Reserve do?

The Federal Reserve has five primary responsibilities:

• Managing U.S. monetary policy by adjusting interest rates and utilizing other policy tools.
• Overseeing the smooth functioning of the U.S. financial system.
• Regulating large financial institutions and banks.
• Ensuring the efficient operation of the payments system.
• Administering certain consumer laws and conducting research to support its overall mission.

What is the FOMC?

The FOMC, or Federal Open Market Committee, is the entity responsible for setting monetary policy. It convenes eight times annually to make decisions regarding the federal funds rate and the Fed’s balance sheet.

The FOMC consists of 12 members, including:

• Seven members of the Fed Board of Governors, led by the Fed chairperson.
• The president of the Federal Reserve Bank of New York.
• Four seats filled by the other 11 regional Federal Reserve Bank presidents, each serving one-year terms on a rotating basis.

When is the next Fed meeting?

The FOMC holds eight scheduled meetings each year, typically spanning two days and concluding on a Wednesday. Here’s the 2023 FOMC meeting schedule:

• January 31 to February 1
• March 21-22
• May 2-3
• June 13-14
• July 25-26
• September 19-20
• October 31 to November 1
• December 12-13

Four of these meetings include a Summary of Economic Projections, revealing the FOMC participants’ expectations for economic growth, the unemployment rate, and inflation in the near and medium-term future.

Why was the Federal Reserve created?

The Federal Reserve System was established in 1913 with the aim of creating a more stable monetary and financial system for the United States.

Prior to its creation, the country experienced recurrent recessions, some of which had devastating effects on the nation’s economy and people’s prosperity.

Notable examples include a two-year recession starting in January 1910, a 13-month downturn commencing in May 1907, and a 23-month contraction in September 1902.

➤ Final Thoughts

These moments in Fed history reveal the intricate dance between policy decisions and economic challenges. The Fed’s actions, like the strokes of a skilled artist, aim to shape the financial landscape.

So, as you dive into the past, remember that the Federal Reserve has played a significant role in the financial story of the last three decades.

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