Federal Funds Rate History 1990 to 2023 Article originally posted on Forbes on July 28, 2023 Mark Twain wrote that history doesn’t repeat itself, but it often rhymes. This could also be said of Federal Reserve interest rate policy, although it’s a lot less entertaining than “The Million Pound Bank Note.” For anyone who follows financial markets, it’s essential to have a good grasp on the course of the Fed’s monetary policy decisions and the reasoning behind them. Understanding why the Federal Open Market Committee (FOMC) raised the fed funds target rate in 1994 can provide insight into why it’s doing something similar today. Forbes Advisor has compiled this history as a handy guide to the course of the federal funds rate and the Federal Reserve’s monetary policy decisions over the last 30 years. Understanding Fed Interest Rate Decisions The Federal Reserve adjusts the federal funds target rate range in response to what’s happening in the economy. Adjusting rates helps the Fed achieve conditions that satisfy their dual mandate: Keep prices stable and maximize employment. Here’s how that works: The Fed raises interest rates when the economy starts overheating—too much inflation—and cuts rates when the economy looks weak—high unemployment. Plenty of other data factor into Fed monetary policy decisions, including gross domestic product (GDP), consumer spending and industrial production, not to mention major events like a financial crisis, a global pandemic or a massive terrorist attack. To that end, we’ve structured this compendium of fed funds historical data with narratives about the different factors that informed the Fed’s decisions. The central bank may be staffed by officious economists, analysts and business experts, but it’s also highly responsive to the changing political winds. About the Data The tables below list the dates of Fed meetings when the FOMC changed interest rates, the size of each rate change in basis points—abbreviated as bps—and the resulting federal funds target rate range. Basis points are a common unit of measurement for interest rates. One basis point is equal to 1/100th of one percentage point, or 0.01%. For instance, a half a percentage point change in an interest rate would equals 50 basis points. Please note that before 1990, the Fed didn’t explicitly target a set federal funds rate. If you’re interested in earlier rate policy, look through this Federal Reserve document produced through a Freedom of Information Act request. FOMC Meeting Date Rate Change (bps) Federal Funds Rate July 26, 2023 +25 5.25% to 5.50% May 3, 2023 +25 5.00% to 5.25% March 22, 2023 +25 4.75% to 5.00% Feb 1, 2023 +25 4.50% to 4.75% Dec 14, 2022 +50 4.25% to 4.50% Nov 2, 2022 +75 3.75% to 4.00% Sept 21, 2022 +75 3.00% to 3.25% July 27, 2022 +75 2.25% to 2.50% June 16, 2022 +75 1.50% to 1.75% May 5, 2022 +50 0.75% to 1.00% March 17, 2022 +25 0.25% to 0.50% It’s easy to forget that the Fed was holding the federal funds rate at around zero as recently as the first quarter of 2022. The Fed was also still buying billions of dollars of bonds every month to stimulate the economy. All despite 40-year highs in various measures of U.S. inflation. Once the Fed decided it was time to do something about inflation, it moved forcefully. Over the last 16 months, the central bank has raised the fed funds rate by more than five percentage points. This has helped reduce red-hot inflation rates that were eating into the purchasing power of everyday Americans. “Without price stability, the economy does not work for anyone,” Federal Reserve Chair Jerome Powell said at an August 2022 speech at Jackson Hole. “In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.” 2020 Fed Rate Cuts: Coping with Covid-19 FOMC Meeting Date Rate Change (bps) Federal Funds Rate March 16, 2020 -100 0% to 0.25% March 3, 2020 -50 1.0% to 1.25% “Information received since the Federal Open Market Committee (FOMC) met in December indicates that the labor market remains strong and that economic activity has been rising at a moderate rate.” So began the FOMC’s policy statement on Jan. 29, 2020, just a few days before the U.S. economy plunged into the Covid-19 recession. Within weeks, the Covid-19 pandemic spread across the globe. Public health officials worldwide recommended that politicians impose lockdowns to stop the spread of the virus and ease hospital caseloads. Roughly 20.5 million jobs would be shed in April 2020 alone, with the unemployment rate jumping to 14.7%. The FOMC delivered two huge rate cuts at unscheduled emergency meetings in March 2020, returning the federal funds target rate range of zero to 0.25%. While the economy was technically growing again by May 2020, after the shortest recession on record, the fallout from the economic measures to cope with the Covid-19 outbreak is still being felt today. 2019 Fed Rate Cuts: Mid-Cycle Adjustment FOMC Meeting Date Rate Change (bps) Federal Funds Rate October 31, 2019 -25 1.50% to 1.75% Sept. 19, 2019 -25 1.75% to 2.0% Aug. 1, 2019 -25 2.0% to 2.25% The Fed cut interest rates by a quarter of a percentage point three times in 2019 in what Powell called a “mid-cycle adjustment.” In plain English, the Fed was easing rates midway through the typical expansion-to-recession business cycle. In 2019, the U.S. and Chinese were in conflict over trade—a so-called “trade war”—and the Fed was concerned that the conflict would harm the economy and push up unemployment rates. Three modest rate cuts in the second half of 2019 had a positive effect on the economy. Inflation was running well below the central bank’s 2% target at the time, as measured by the core personal consumption expenditures price index (PCE), the Fed’s preferred measure of U.S. inflation. Core PCE was up 1.7% in June 2019 compared to the prior year. By February 2020, it was only up 1.9%. Fed Rate Hikes 2015-2018: Returning to Normalcy FOMC Meeting Date Rate Change (bps) Federal Funds Rate December 20, 2018 +25 2.25% to 2.50% Sept. 27, 2018 +25 2.0% to 2.25% Jun. 14, 2018 +25 1.75% to 2.0% March 22, 2018 +25 1.50% to 1.75% Dec. 14, 2017 +25 1.25% to 1.50% June 15, 2017 +25 1.00% to 1.25% March 16, 2017 +25 0.75% to 1.00% Dec. 15, 2016 +25 0.5% to 0.75% Dec. 17, 2015 +25 0.25% to 0.50% In late 2008, the Fed slashed rates to zero in an unprecedented attempt to help the U.S. economy cope with the fallout from the 2008 global financial crisis. Seven years later, the central bank began gingerly raising rates as the economy recovered gradually. The first rate increase was in December 2015, under former Fed Chair Janet Yellen, who now serves as Treasury Secretary under the Biden administration. It would take another year for the next rate hike to arrive, in December 2016. “The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2% objective,” the Fed wrote in a statement that accompanied the initial 2015 rate hike. Core PCE inflation was 1.1% in December 2015, well below the Fed’s target. It wouldn’t hit 2% until March 2018. Meanwhile, the nation’s unemployment rate had another 1.5 percentage points to fall over the next four years or so. Disastrous economic readings from China in early 2016 caused stock markets to panic and forced the Fed to pause more rate hikes for a full year. The FOMC took its time returning to a more normal monetary policy stance until another economic storm changed its outlook in 2019. 2008 Fed Rate Cuts: The Great Recession FOMC Meeting Date Rate Change (bps) Federal Funds Rate Dec. 16, 2008 -100 0% to 0.25% Oct. 29, 2008 -50 1.00% Oct. 8, 2008 -50 1.50% The Great Recession officially began in December 2007 and lasted until June 2009. But the Fed paused rate cuts between April 2008 and October 2008, as the global financial crisis deepened. American families saw their home values collapse, and the stock market didn’t reach its bottom until early 2009. The unemployment rate grew from 5% in December 2007 to 10% by October 2009. “Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined,” noted the FOMC in its statement accompanying the December 16, 2008 decision. “Financial markets remain quite strained and credit conditions tight.” It was an almost historical level of understatement. After lowering rates to zero, the Fed began implementing a new type of monetary policy known as quantitative easing, or QE. Unable to cut rates any further, it began buying trillions of dollars worth of bonds to stimulate the economy and get Americans back to work. Many have still not yet recovered and never will. Fed Rate Cuts 2007-2008: The Housing Market Crash FOMC Meeting Date Rate Change (bps) Federal Funds Rate Apr. 30, 2008 -25 2.00% Mar. 18, 2008 -75 2.25% Jan. 30, 2008 -50 3.00% Jan. 22, 2008 -75 3.50% Dec. 11, 2007 -25 4.25% Oct. 31, 2007 -25 4.50% Sept. 18, 2007 -50 4.75% The Fed completed its 2005-2006 campaign for rate hikes in June 2006. By early 2007, the housing bubble was bursting and the unemployment rate started to rise. With the economy ailing, the FOMC started reducing rates in September 2007, eventually slashing rates by 2.75 percentage points in less than a year. “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity,” the Fed said in an April 2008 statement. After the April 2008 rate cut, then Fed Chair Ben Bernanke hit pause to survey the impact of lower interest rates on the economy. Some analysts believed that higher inflation was afoot—and few realized how bad the coming global financial crisis would become. ”Policymakers know all too well that when real rates are negative for an extended period of time, inflation pressures rise swiftly and dramatically,” Rich Yamarone, the director of economic research at Argus Research at the time, told CNNMoney. Fed Rate Hikes 2005-2006: The Housing Market Boom FOMC Meeting Date Rate Change (bps) Federal Funds Rate Jun. 29, 2006 +25 5.25% May. 10, 2006 +25 5.00% Mar. 28, 2006 +25 4.75% Jan. 31, 2006 +25 4.50% Dec. 13, 2005 +25 4.25% Nov. 1, 2005 +25 4.00% Sept. 20, 2005 +25 3.75% Aug. 9, 2005 +25 3.50% June 30, 2005 +25 3.25% May 3, 2005 +25 3.00% March 22, 2005 +25 2.75% Feb. 2, 2005 +25 2.50% Dec. 14, 2004 +25 2.25% Nov. 10, 2004 +25 2.00% Sept. 21, 2004 +25 1.75% Aug. 10, 2004 +25 1.50% June 30, 2004 +25 1.25% After the dot-com recession of the early 2000s, the U.S. economy recovered quickly. The Fed had cut rates in mid-2003, putting the fed funds target rate at 1%. That easy money helped GDP expand from +1.7% in 2001 to +3.9% in 2004—and by 2005, people were already talking about a bubble in U.S. housing markets. “Right now, price relative to rent, price relative to construction cost, price relative to income, those are all at high or record levels, and people are starting to become aware of that,” economist Robert Shiller told NPR in a June 2005 interview. The Fed tried to cool off the economy and the growing real estate bubble by hiking interest rates 17 times in two years, raising the fed fund target rate by 4 percentage points over the period. Inflation remained pretty subdued, however, with core PCE inflation topping out at 2.67% in August 2006, despite the Fed’s hawkish turn. By the end of this cycle of rate increases, the unemployment rate sat at 4.6% and PCE inflation started to decline toward the Fed’s 2% target. Fed Rate Cuts 2002-2003: Flagging Recovery, Low Inflation FOMC Meeting Date Rate Change (bps) Federal Funds Rate June 25, 2003 -25 1.00% November 6, 2002 -50 1% The dot-com recession lasted from March to November 2001. But the Fed was worried that the economic recovery was anemic, with measures of consumer confidence hitting nine-year lows. The FOMC dropped a 50 bps rate cut on the economy in November 2002, citing “greater uncertainty” and “geopolitical risks.” Markets were somewhat puzzled by the decision and the brief statement. According to news reports at the time, analysts had expected a smaller 25 bps reduction or a statement that they would consider cutting in the future, By mid-2003, inflation was worryingly low—core PCE was at 1.78% in January and fell to 1.47% nine months later. Worried about deflation, the FOMC cut rates by a modest 25 basis points. Still, it put fed funds rate at its lowest level in 45 years. “With inflationary expectations subdued, the committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time,” the Fed said in a statement. 2001 Fed Rate Cuts: The Dot-Com Bust and 9/11 FOMC Meeting Date Change (bps) Federal Funds Rate Dec. 11, 2001 -25 1.75% Nov. 6, 2001 -50 2.00% Oct. 2, 2001 -50 2.50% Sept. 17, 2001 -50 3.00% Aug. 21, 2001 -25 3.50% June 27, 2001 -25 3.75% May 15, 2001 -50 4.00% April 18, 2001 -50 4.50% March 20, 2001 -50 5.00% Jan. 31, 2001 -50 5.50% Jan. 3, 2001 -50 6.00% After the dot-com bubble of the late 1990s and 2000 came the dot-com bust of 2001. The frenzy of irrational exuberance saw massive amounts of money flow into ever less viable dot-com investments, leading to an inevitable stock market crash. The Nasdaq Composite peaked in February 2000 but wouldn’t bottom out until September 2002. Along the way, the stock market meltdown spilled over into the real economy, driving a modest contraction in GDP and higher unemployment levels—and an eight-month long recession. The 9/11 terrorist attacks only exacerbated the problems in the economy. The Fed lowered interest rates by a total of 5.25 percentage points with a steady drumbeat of rate cuts throughout 2001. Fed Rate Hikes 1999-2000: The Dot-Com Boom FOMC Meeting Date Change (bps) Federal Funds Rate May 16, 2000 +50 6.50% March 21, 2000 +25 6.00% Feb. 2, 2000 +25 5.75% Nov. 16, 1999 +25 5.50% Aug. 24, 1999 +25 5.25% June 30, 1999 +25 5.00% Between 1995 and its peak in March 2000, the Nasdaq rose 400% as a frenzy of speculation pushed up the value of internet stocks and tech companies. The Fed watched the bubble inflate and stepped in with rate increases starting in June 1999. With the unemployment rate hovering around 4% and inflation inching toward the Fed’s 2% target, former Fed Chair Alan Greenspan wanted to stamp out any chance that inflation expectations could get entrenched—hence the 50 bps raise to cap this tightening cycle. Funnily enough, at least when viewed through the lens of today’s market participants, investors cheered the news and stocks enjoyed an immediate “relief rally.” There were rumblings from some analysts that rates might go even higher, but the Fed held off as inflation plateaued. 1998 Fed Rate Cuts: Global Currency Crisis FOMC Meeting Date Rate Change (bps) Federal Funds Rate November 17, 1998 -25 4.75% October 15, 1998 -25 5.00% September 29, 1998 -25 5.25% The 1998 rate cut cycle was unusual because the sources of economic tension driving the FOMC’s moves came mostly from abroad. An interrelated series of events prompted the three rate cuts in the fall of 1998. An Asian currency crisis started in Thailand in 1997 and then swept through the rest of Asia and Latin America. This helped spark a currency crisis in Russia in late 1998, and these problems drove a giant U.S. hedge fund called Long-Term Capital Management (LTCM) to the brink of bankruptcy. In a terse statement—by modern standards—accompanying the September 1998 rate cut, the Fed simply announced that “action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies and of less accommodative financial conditions domestically.” 1997 Fed Rate Hike: FOMC Lightly Taps the Brakes FOMC Meeting Date Rate Change (bps) Federal Funds Rate March 25, 1997 +25 5.50% In March 1997, inflation stood at 1.94% and was inching up ever so slightly. The glorious 1990s economy was roughly six years into its 10-year-long expansion, and the Fed wanted to ensure that prices stayed moored to its 2% target. “‘[T]he slight firming of monetary conditions is viewed as a prudent step that affords greater assurance of prolonging the current economic expansion by sustaining the low inflation environment through the rest of this year and next,” read the Fed’s statement. Fed Rate Cuts 1995-1996: Mid-Cycle Adjustment, 90s-Style FOMC Meeting Date Rate Change (bps) Federal Funds Rate Jan. 31, 1996 -25 5.25% Dec. 19, 1995 -25 5.50% July 6, 1995 -25 5.75% The 1990s are remembered as a time of rampant wealth creation and productivity growth, so it’s somewhat surprising to see three rate cuts over a six-month period smack dab in the middle of the decade. The Fed went hard after inflation in 1994 and early 1995. After its July 1995 decision, the FOMC wrote that “[a]s a result of the monetary tightening initiated in early 1994, inflationary pressures have receded enough to accommodate a modest adjustment in monetary conditions.” Six months later, the Fed was staring at an unemployment rate of 5.6%, which was unchanged from the year prior. With recent retail sales coming in lower than expected, the Fed felt more stimulus was needed. Fed Rate Hikes 1994-1995: A Soft Landing FOMC Meeting Date Rate Change (bps) Federal Funds Rate Feb. 1, 1995 +50 6.00% Nov. 15, 1994 +75 5.50% Aug. 16, 1994 +50 4.75% May 17, 1994 +50 4.25% April 18, 1994 +25 3.75% March 22, 1994 +25 3.50% Feb. 4, 1994 +25 3.25% The monetary policy tightening cycle of 1994-1995 is commonly remembered as a rare instance of the Fed carrying out a so-called “soft landing” for the economy. Between February 1994 and February 1995, Greenspan led the FOMC to almost double the fed funds rate in just seven increases. After a brief recession earlier in the decade, the U.S. economy was booming—GDP was +3.5% in 1992, +2.8% in 1993 and a whopping +4% in 1993. Back then, baby boomers were at the height of their careers, immigration was strong and new technology was transforming the economy. With strong productivity rates keeping unemployment low, the Fed hiked into a strong economy. “The decision was taken to move toward a less accommodative stance in monetary policy in order to sustain and enhance the economic expansion,” read the Fed’s terse statement accompanying the February 1994 kick-off. This was the first time the Fed announced rate hikes in real-time. Nevertheless, markets were caught unawares and the 1994 Bond Crash commenced. Fed Rate Cuts 1990-1992: The Gulf War Recession FOMC Meeting Date Rate Change (bps) Federal Funds Rate Sept. 4, 1992 -25 3.00% July 2, 1992 -50 3.25% April 9, 1992 -25 3.75% Dec. 20, 1991 -50 4.00% Dec. 6, 1991 -25 4.50% Nov. 6, 1991 -25 4.75% Oct. 31, 1991 -25 5.00% Sept. 13, 1991 -25 5.25% Aug. 6, 1991 -25 5.50% April 30, 1991 -25 5.75% March 8, 1991 -25 6.00% Feb. 1, 1991 -50 6.25% Jan. 9, 1991 -25 6.75% Dec. 18, 1990 -25 7.00% Dec. 7, 1990 -25 7.25% Nov. 13, 1990 -25 7.50% Oct. 29, 1990 -25 7.75% July 13, 1990 -25 8.00% When you read reports of Fed interest rate decisions before 1994, you quickly notice something different compared to the current era of transparency. Analysts were left to interpret the Fed’s moves without much help because the central bank didn’t put out a policy statement, much less hold a press conference. In fact, for most of the 1980s, the Fed didn’t even use the federal funds rate to set interest rate policy. Still, when the Fed cuts interest rates, it’s usually for one reason: to get the economy going. The Gulf War recession lasted from July 1990 to March 1991, but it took a while for households to get back on their feet. The unemployment rate, for instance, jumped from 5.2% in June 1990 to 7.8% two years later.