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Photo by Getty Images; Illustration by Bankrate November 02, 2022 Sarah Foster covers the Federal Reserve, the U.S. economy and economic policy. She previously worked for Bloomberg News, the Chicago Tribune and the Chicago Daily Herald. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Bankrate logo

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1981-1990 The Fed fights the Great Inflation

The fed funds rate has never been as high as it was in the 1980s. Most of the reason why is because the Fed wanted to combat inflation, which soared in 1980 to its highest level on record: 14.6 percent. As a result, the U.S. central bank did something that might seem counterintuitive for an institution that strives to maintain the most productive economy possible: It manufactured a recession to bring prices back down. The fed funds rate began the decade at a target level of 14 percent in January 1980. By the time officials concluded a conference call on Dec. 5, 1980, they hiked the target range by 2 percentage points to 19-20 percent, its highest ever. Rates then began drifting downward sharply, falling first to a target range of 13-14 percent on Nov. 2, 1982, then down to 11.5-12 percent on July 20, 1982. After some oscillation, interest rates haven’t eclipsed 10 percent since November 1984. The “effective” fed funds rate averaged at 9.97 percent during this 10-year period. But the Fed has changed almost as much as interest rates since then. Instead of slowly and gradually moving rates in one direction (up or down), officials in this decade would often hike their benchmark rate, then cut it, then raise it again. The Fed would also adjust rates at unscheduled meetings more often than not, after which it wouldn’t release policy statements. The fed funds rate also wouldn’t hold in as tight of a target range as it does today, sometimes spanning 5 percentage points instead of a 0.25 percentage point window. Those changes highlight a new mantra for the Fed: Avoid surprising markets, and you avoid unduly financial tightening. Chairman Paul Volcker was the main driver of Fed policy in this decade, leading the Fed until Chairman Alan Greenspan took the post in August 1987.

1991-2000 The Greenspan-era Fed

Fed rate moves Meeting date Rate change Target Source: Fed’s board of governors January 9, 1991: Conference call -25 basis points 6.75 percent February 1, 1991: Conference call -50 basis points 6.25 percent March 8, 1991: Unscheduled move -25 basis points 6 percent April 30, 1991: Conference call -25 basis points 5.75 percent Aug. 5, 1991: Conference call -25 basis points 5.5 percent Sept. 13, 1991: Conference call -25 basis points 5.25 percent Oct. 30, 1991: Conference call -25 basis points 5 percent Nov. 5, 1991 -25 basis points 4.75 percent Dec. 6, 1991 (After a Dec. 2, 1991, conference call) -25 basis points 4.5 percent Dec. 20, 1991 (After Dec. 17, 2001, meeting) -50 basis points 4 percent April 9, 1992: Unscheduled move -25 basis points 3.75 percent June 30-July 1, 1992 -50 basis points 3.25 percent Sept. 4, 1992: Unscheduled move -25 basis points 3 percent Feb. 3-4, 1994 +25 basis points 3.25 percent March 22, 1994 +25 basis points 3.5 percent April 18, 1994: Emergency meeting +25 basis points 3.75 percent May 17, 1994 +50 basis points 4.25 percent Aug. 16, 1994 +50 basis points 4.75 percent Nov. 15, 1994 +75 basis points 5.5 percent Jan. 31-Feb. 1, 1995 +50 basis points 6 percent July 5- 6, 1995 -25 basis points 5.75 percent Dec. 19, 1995 -25 basis points 5.5 percent Jan. 30-31, 1996 -25 basis points 5.25 percent March 25, 1997 +25 basis points 5.5 percent Sept. 29, 1998 -25 basis points 5.25 percent Oct. 15, 1998: Emergency meeting -25 basis points 5 percent Nov. 17, 1998 -25 basis points 4.75 percent June 29-30, 1999 +25 basis points 5 percent Aug. 24, 1999 +25 basis points 5.25 percent Nov. 16, 1999 +25 basis points 5.5 percent Feb. 1-2, 2000 +25 basis points 5.75 percent March 21, 2000 +25 basis points 6 percent May 16, 2000 +50 basis points 6.5 percent After a tumultuous few years for the Fed during the Great Inflation, Greenspan faced a much calmer period, though that’s not to say he didn’t have his fair share of challenges during his near 18-year tenure at the helm of the Fed. After an eight-month recession beginning in August 1990, Greenspan and Co. managed to take the fed funds rate all the way up to a target level of 6.5 percent in May 2000, the highest of the period. Rates reached a low of 3 percent in September 1992, the lowest of the decade. Besides during the early 1990s, the Fed mainly adjusted rates at , a practice that is in rhythm with today’s Fed. Officials did hike rates on April 19, 1994, at an emergency meeting due to inflation worries, and they cut borrowing costs at an unscheduled Oct. 15, 1998, gathering. Another noteworthy feat, the U.S. central bank also made , meaning officials cut interest rates to give the economy an extra boost, not to fight a recession. Such was the case in 1995, 1996 and 1998, when the financial system confronted a share of headwinds ranging from debt default in Russia to a major hedge fund’s collapse.

2001-2010 The dotcom bust the 9 11 terrorist attacks and the financial crisis of 2008

Rate cuts 2001-2003 Meeting date Rate change Target Source: Fed’s board of governors Jan. 3, 2001: Emergency meeting -50 basis points 6 percent Jan 30-31, 2001 -50 basis points 5.5 percent March 20, 2001 -50 basis points 5 percent April 18, 2001: Emergency meeting -50 basis points 4.5 percent May 15, 2001 -50 basis points 4 percent June 26-27, 2001 -25 basis points 3.75 percent Aug. 21, 2001 -25 basis points 3.5 percent September 17, 2001: Emergency meeting -50 basis points 3 percent Oct. 2, 2001 -50 basis points 2.5 percent Nov. 6, 2001 -50 basis points 2 percent Dec. 11, 2001 -25 basis points 1.75 percent Nov. 6, 2002 -50 basis points 1.25 percent June 24-25, 2003 -25 basis points 1 percent Rate hikes 2004-2006 Meeting date Rate change Target Source: Fed’s board of governors June 29-30, 2004 +25 basis points 1.25 percent Aug. 10, 2004 +25 basis points 1.5 percent Sept. 21, 2004 +25 basis points 1.75 percent Nov. 10, 2004 +25 basis points 2 percent Dec. 14, 2004 +25 basis points 2.25 percent Feb. 1-2, 2005 +25 basis points 2.5 percent March 22, 2005 +25 basis points 2.75 percent May 3, 2005 +25 basis points 3 percent June 29-30, 2005 +25 basis points 3.25 percent Aug. 9, 2005 +25 basis points 3.5 percent Sept. 20, 2005 +25 basis points 3.75 percent Nov. 1, 2005 +25 basis points 4 percent Dec. 13, 2005 +25 basis points 4.25 percent Jan. 31, 2006 +25 basis points 4.5 percent March 28, 2006 +25 basis points 4.75 percent May 10, 2006 +25 basis points 5 percent June 29, 2006 +25 basis points 5.25 percent Rate cuts 2007-2008 Meeting date Rate change Target & target range Source: Fed’s board of governors Sept. 18, 2007 -50 basis points 4.75 percent Oct. 30-31, 2007 -25 basis points 4.5 percent Dec. 11, 2007 -25 basis points 4.25 percent Jan. 22, 2008: Emergency meeting -75 basis points 3.5 percent Jan. 29-30, 2008 -50 basis points 3 percent March 18, 2008 -75 basis points 2.25 percent April 29-30, 2008 -25 basis points 2 percent Oct 8, 2008: Emergency meeting -50 basis points 1.50 percent Oct. 28-29, 2008 -50 basis points 1 percent Dec. 15-16, 2008 -100 to 75 basis points 0-0.25 percent The 2000s were the Fed’s most rhythmic period yet, with the Fed following clear cycles for both tightening and loosening rates. To start the decade, the Fed slashed interest rates 13 times to a low of 1 percent — a range that might’ve been unthinkable for those who remembered rates in the ‘80s — after a stock market bubble in the technology sector burst, kickstarting a recession that was exacerbated by the 9/11 terrorist attacks. The U.S. central bank then managed to hike interest rates 17 times between 2004 and 2006 — all of those increases in gradual, quarter-point moves — to a high of 5.25 percent. That was until the financial crisis of 2008 happened and the ensuing Great Recession, which slammed the brakes on the economy. The Fed then did the unthinkable: It slashed interest rates by 100 basis points to near-zero. Chairman Ben Bernanke led the Fed during this period, which was, at the time, one of its most aggressive economic rescue efforts in Fed history.

2011-2020 Recovering from the Great Recession and the coronavirus pandemic

Rate hikes 2015-2018 Meeting date Rate change Target range Source: Fed’s board of governors Dec. 15-16, 2015 +25 basis points 0.25-0.5 percent Dec. 13-14, 2016 +25 basis points 0.5-0.75 percent March 14-15, 2017 +25 basis points 0.75-1 percent June 13-14, 2017 +25 basis points 1-1.25 percent Dec. 12-13, 2017 +25 basis points 1.25-1.5 percent March 20-21, 2018 +25 basis points 1.5-1.75 percent June 12-13, 2018 +25 basis points 1.75-2 percent Sept. 25-26, 2018 +25 basis points 2-2.25 percent Dec. 18-19, 2018 +25 basis points 2.25-2.5 percent Rate cuts 2019-2020 Meeting date Rate change Target range Source: Fed’s board of governors July 30-31, 2019 -25 basis points 2-2.25 percent Sept. 17-18, 2019 -25 basis points 1.75-2 percent Oct. 29-30, 2019 -25 basis points 1.5-1.75 percent March 3, 2020: Emergency meeting -50 basis points 1-1.25 percent March 14-15, 2020: Emergency meeting -100 basis points 0-0.25 percent The Fed couldn’t escape zero rates in the 2010s just as much as it couldn’t escape devastating recessions. Officials would ultimately end up leaving interest rates at rock-bottom until 2015, after which they only hiked interest rates by 25 basis points once per year. That is, until 2017, when the Fed hiked three times, and 2018, when they hiked four more times. The fed funds rate peaked at 2.25-2.5 percent. Facing tepid inflation and moderating growth, the Fed also decided in 2019 to cut interest rates three times to give the economy a fresh boost — similar to Greenspan’s “insurance” cuts of the 1990s. The fed funds rate looked like it was about to settle there until the coronavirus pandemic came along, ushering back in another era of near-zero rates. The Fed slashed rates to zero across two emergency meetings within 13 days of each other as the gears of the economy came to a halt. Chair Janet Yellen took the helm of the Fed from Bernanke in February 2014 and steered the economy through its Great Recession recovery until February 2018, when Chair Jerome Powell was installed.

2021-present As inflation returns what will the Fed do next

Rate hikes 2022-Present Meeting date Rate change Target range Source: Fed’s board of governors March 15-16, 2022 +25 basis points 0.25-0.5 percent May 3-4, 2022 +50 basis points 0.75-1 percent June 14-15, 2022 +75 basis points 1.50-1.75 percent July 26-27, 2022 +75 basis points 2.25-2.5 percent Sept. 20-21, 2022 +75 basis points 3-3.25 percent Nov. 1-2, 2022 +75 basis points 3.75-4 percent It’s been a blast from the past for Fed rate-setting this year, with inflation returning as the No. 1 economic threat in the aftermath of the coronavirus crisis. The Fed hiked interest rates by a quarter point in March 2022 for the first time since 2018, leaving interest rates at near-zero percent for two years to give the economy time to recover from the coronavirus pandemic. They didn’t stop breaking milestones there. The Fed approved the largest rate hike since 2000 during its May gathering when it , as well as the largest rate hike since 1994 when it hiked interest rates by three-quarters of a percentage point in June. Officials felt comfortable leaving their foot on the gas even as inflation soared to a 40-year high. Experts say U.S. central bankers usually worry about the wrong conflict. Just how officials spent the 1990s worried about inflation, the Fed probably spent the early 2020s fearing too-low inflation, says Scott Sumner, monetary policy chair at George Mason University’s Mercatus Center. By many standards, however, an entirely different U.S. central bank is steering the boat, meaning officials don’t want to tame inflation with aggressive, volatile rate hikes similar to the 1980s, Sumner says. Yet, officials have also spoken out against the stop-and-go manner of rate hikes leading up to the Great Inflation of the 1980s. “The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years,” Powell said in August 2022 at the Fed’s annual monetary policy symposium. “A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year. Our aim is to avoid that outcome by acting with resolve now.”

Bottom line

Concentrate on eliminating high-interest debt, boosting your credit score and shopping around for the best where you can park your cash. “Central banks tend to focus on fighting the last war,” Sumner says. “If you have a lot of inflation, you get a more hawkish stance. If you’ve undershot your inflation target, then the Fed thinks, ‘Well, maybe we should’ve been more expansionary.’ Powell came into his job with that determination, that if there was another recession, they would be more aggressive. My own view is that the strategy was relatively successful at first but pushed too far.” SHARE: Sarah Foster covers the Federal Reserve, the U.S. economy and economic policy. She previously worked for Bloomberg News, the Chicago Tribune and the Chicago Daily Herald. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money.

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