A Closer Look At The Fed Interest Rate Hike History

A Closer Look At The Fed Interest Rate Hike History

By Yash

The interest rates in the nation are rising again. But a look at the fed interest rate hike history shows that it is still quite cheaper than what has been the situation in the financial part of the nation. The fund rate of the federal reserve is a major borrowing benchmark that is set by the central bank. It has stayed below the historical average for the past decade. Over the past decade, this key rate of the Federal Reserve spent nearly all of the years at the bottom level of zero percent. This started from the point of recession to earlier this year. The fed interest rate hike history shows that the rates reached more than nineteen percent about 40 years ago. The fund rate of the Federal Reserve matters because it has some other effects on nearly every aspect of the financial lives of the citizens in the country. This ranges from how much they are charged to borrow money from financial institutions and how much they get in interest when they save.

The central bank rate also affects the annual percentage rate on adjustable-rate mortgages, auto loans, home equity lines of credit, and credit cards. It also affects the yields on savings accounts and certificates of deposit. The central bank does not influence the mortgages directly. But they also tend to follow the path of the fund rate set by the Federal Reserve. Let us learn more about the fed interest rate hike history and how it has been modified throughout the years. This is according to the official record of the Federal Reserve's policy moves. All the changes are shown in basis points. This is one-hundredth of a percentage point.


Fed Interest Rate Hike History in the 80s Was About Fighting Inflation


The fund rate of the Federal Reserve has never been to the level that it was during this time. This is because the Federal Reserve wanted to fight against inflation. It was raging during that period to the highest mark in the nation's history at nearly fifteen percent. As an outcome, the Federal Reserve did something that may look contrary to a financial institution to maintain the most productive economy. It started a recession to bring down the prices. The fund rate of the Federal Reserve started that period at a target mark of less than fifteen percent. By the time the officials of the Federal Reserve concluded their meeting at the start of the decade, they had increased the target range by a couple of percentage points to more than eighteen percent. The rates then began to march downwards steeply. After some volatility, the interest rates went down to single digits permanently. The effective fund rate of the Federal Reserve was at an average of under ten percent during this decade.


But the Federal Reserve has modified almost as many interest rates since that time. The officials often increased their benchmark rate, then reduced it, and then raised it again. The Federal Reserve would also adjust the rates at meetings more often than not than before. It would also not release any policy statements after that revision. The fund rate of the Federal Reserve also would not hold as narrow of a target range as it likes it right now. Sometimes it was as wide as more than four percentage points instead of a window of twenty-five basis points. These modifications show a new motto for the Federal Reserve. They want to avoid surprising the financial markets and restrict the unduly tightening of the financial policy. The chairman of the Federal Reserve during this time was Paul Volcker. He was the main driver of the policy of the Federal Reserved during this period. After him, Alan Greenspan took over the post near the end of this period.


Fed Interest Rate Hike History in the 90s Was Led by Greenspan


After a rocky number of years for the Federal Reserve during the Great Inflation in the 80s, the new chairman Greenspan had a much steadier period. But he had his own set of challenges during his tenure that lasted for nearly two decades at the top of the Federal Reserve. At the start of the decade, a recession lasted for more than half a year. The Federal Reserve managed to take the fund rate to a target mark of more than six percent at the end of the decade. But it was still the highest mark of the period. The rates had gone down to as low as under four percent a couple of years into the decade. Also, during the early part of the decade, the Federal Reserve adjusted the fund rate at the Federal Open Market Committee meetings. At that time, the officials had increased the rates at an emergency meeting because of inflation issues. They had reduced the costs of borrowing at an unscheduled gathering. Another major feat that the Federal Reserve made was that it initiated its first insurance reductions. It meant that officials reduced the interest rates to boost the economy and not combat recession.


Such was the case during the middle of the decade when the financial systems went through some turbulent times because of a debt default in Russia and a big hedge fund collapse.


Fed Interest Rate Hike History in 2000s Faced Recession & Terrorist Attacks


This period was one of the most well-oiled ones for the Federal Reserve. It followed clear cycles for both increasing and decreasing the fund rate. The Federal Reserve reduced the interest rates more than a dozen times to a low of under two percent. This range might not have been possible for those who remembered the high rates in the past decades. This was after a bubble in the financial markets in the tech sector burst. It started a recession that was further increased by the terrorist attacks at the start of this decade. The Federal Reserve then had to resort to increasing the interest rates nearly 20 times in a couple of years. But all of these increases were of twenty-five basis points each. The rates went up to more than five percent. This was until the great recession. The financial crisis happened near the end of the decade, which led to a sudden halt for the economy.


The Federal Reserve then reduced the interest rates by a whole percentage point to nearly nothing. The chairman of the Federal Reserve during this period was Ben Bernanke. He led one of the most aggressive rescue efforts of the economy in the history of the Federal Reserve.


Fed Interest Rate Hike History in the 2010s was About Recovering from Recession


The economy faced moderate growth and inflation during this time. Near the end of this decade, the Federal Reserve decided to reduce the interest rates more than a couple of times to boost the nation's economy. This was similar to the insurance cuts that were made during the '90s. The fund rate of the Federal Reserve looked like settling at the mark until the pandemic started. It led to another race to maintain the near-zero rates. The Federal Reserve started to reduce the rates to near zero across some emergency meetings within a couple of weeks. This is because the gears of the economy came to a complete stop.


Scott Sumner, monetary policy chair at George Mason University's Mercatus Center, said, "Central banks tend to focus on fighting the last war. If you have a lot of inflation, you get a more hawkish stance. If you've undershot your inflation target, the Fed thinks, 'Well, maybe we should've been more expansionary.' Powell came into his job with the determination that they would be more aggressive if there was another recession. My own view is that the strategy was relatively successful at first but pushed too far."




The fed interest rate hike history shows that the Federal Reserve has had a very interesting past in controlling and giving direction to the economy of the nation. The investors are now readying themselves for a number of tightening cycles. It can lead to a new era of higher rates.