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Comparing the Speed of U.S. Interest Rate Hikes (1988-2022)

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Line chart comparing the speed of interest rate hikes over cycles since 1988. The 2022 cycle is the fastest with the effective federal funds rate rising 2.36 p.p. in six months

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Comparing the Speed of U.S. Interest Rate Hikes

As U.S. inflation remains at multi-decade highs, the Federal Reserve has been aggressive with its interest rate hikes. In fact, rates have risen more than two percentage points in just six months.

In this graphic—which was inspired by a chart from Chartr—we compare the speed and severity of the current interest rate hikes to other periods of monetary tightening over the past 35 years.

Measuring Periods of Interest Rate Hikes

We used the effective federal funds rate (EFFR), which measures the weighted average of the rates that banks use to lend to each other overnight. It is determined by the market but influenced by the Fed’s target range. We considered the starting point for each cycle to be the EFFR during the month when the first rate hike took place.

Here is the duration and severity of each interest rate hike cycle since 1988.

Time PeriodDuration 
(Months)
Total Change in EFFR
(Percentage Points)
Mar 1988 - May 198914 3.23
Feb 1994 - Feb 1995122.67
Jun 1999 - May 2000111.51
Jun 2004 - Jun 2006243.96
Dec 2015 - Dec 2018362.03
Mar 2022 - Sep 2022 62.36

* We considered a rate hike cycle to be any time period when the Federal Reserve raised rates at two or more consecutive meetings. The 2022 rate hike cycle is ongoing with data as of September 2022.

The 2022 rate hike cycle is the fastest, reaching a 2.36 percentage point increase nearly twice as fast as the rate hike cycle of ‘88-‘89.

On the other hand, the most severe interest rate hikes occurred in the ‘04 – ‘06 cycle when the EFFR climbed by almost four percentage points. It took much longer to reach this level, however, with the hikes taking place over two years.

Timing Interest Rate Hikes

Why are 2022’s interest rate hikes so rapid? U.S. inflation far exceeds the Fed’s long-term target of 2%. In fact, when the hikes started in March 2022, inflation was the highest it’s ever been in the last six rate hike cycles.

Time PeriodInflation Rate at Start of Cycle
Mar 1988 - May 19893.60%
Feb 1994 - Feb 19952.06%
Jun 1999 - May 20001.40%
Jun 2004 - Jun 20062.89%
Dec 2015 - Dec 20180.30%
Mar 2022 - Sep 2022 6.77%

Inflation rate is the year-over-year change as measured by the Personal Consumption Expenditures (PCE) Index.

In contrast, three of the rate hike cycles started with inflation at or below the 2% target. Inflation was just 0.30% in December 2015 when the Fed announced its first rate hike since the global financial crisis.

Some criticized the Fed for raising rates prematurely, but the Fed’s rationale was that it can take up to three years or more for policy actions to affect economic conditions. By raising rates early and gradually, the Fed hoped to avoid surging inflation in the future.

Fast forward to today, and the picture couldn’t look more different. Inflation exceeded the 2% target for 12 months before the Fed began to raise rates. Initially, the Fed believed inflation was “transitory” or short-lived. Now, inflation is a top financial concern and there is a risk that it has gathered enough momentum that it will be difficult to bring down.

Balancing Inflation and Recession Risks

The Fed expects to raise its target rate to around 4.4% by the end of 2022, up from the current range of 3-3.25%. However, they don’t foresee inflation reaching their 2% target until 2025.

In the meantime, the rapid interest rate hikes could lead to an economic downturn. Risks of a global recession have increased as other central banks raise their rates too. The World Bank offers policymakers a number of suggestions to help avoid a recession:

  • Central banks can communicate policy decisions clearly to secure inflation expectations and, hopefully, reduce how much they need to raise rates.
  • Governments can carefully withdraw fiscal support, develop medium-term spending and tax policies, and provide targeted help to vulnerable households.
  • Other economic policymakers can help relieve supply pressures through various measures. For instance, they can introduce policies to increase labor force participation, enhance global trade networks, and bring in measures to reduce energy consumption.

Will policymakers heed this advice and, if so, will it prove sufficient to avoid a global recession?

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Economy

Charted: Public Trust in the Federal Reserve

Public trust in the Federal Reserve chair has hit its lowest point in 20 years. Get the details in this infographic.

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The Briefing

  • Gallup conducts an annual poll to gauge the U.S. public’s trust in the Federal Reserve
  • After rising during the COVID-19 pandemic, public trust has fallen to a 20-year low

 

Charted: Public Trust in the Federal Reserve

Each year, Gallup conducts a survey of American adults on various economic topics, including the country’s central bank, the Federal Reserve.

More specifically, respondents are asked how much confidence they have in the current Fed chairman to do or recommend the right thing for the U.S. economy. We’ve visualized these results from 2001 to 2023 to see how confidence levels have changed over time.

Methodology and Results

The data used in this infographic is also listed in the table below. Percentages reflect the share of respondents that have either a “great deal” or “fair amount” of confidence.

YearFed chair% Great deal or Fair amount
2023Jerome Powell36%
2022Jerome Powell43%
2021Jerome Powell55%
2020Jerome Powell58%
2019Jerome Powell50%
2018Jerome Powell45%
2017Janet Yellen45%
2016Janet Yellen38%
2015Janet Yellen42%
2014Janet Yellen37%
2013Ben Bernanke42%
2012Ben Bernanke39%
2011Ben Bernanke41%
2010Ben Bernanke44%
2009Ben Bernanke49%
2008Ben Bernanke47%
2007Ben Bernanke50%
2006Ben Bernanke41%
2005Alan Greenspan56%
2004Alan Greenspan61%
2003Alan Greenspan65%
2002Alan Greenspan69%
2001Alan Greenspan74%

Data for 2023 collected April 3-25, with this statement put to respondents: “Please tell me how much confidence you have [in the Fed chair] to recommend the right thing for the economy.”

We can see that trust in the Federal Reserve has fluctuated significantly in recent years.

For example, under Alan Greenspan, trust was initially high due to the relative stability of the economy. The burst of the dotcom bubble—which some attribute to Greenspan’s easy credit policies—resulted in a sharp decline.

On the flip side, public confidence spiked during the COVID-19 pandemic. This was likely due to Jerome Powell’s decisive actions to provide support to the U.S. economy throughout the crisis.

Measures implemented by the Fed include bringing interest rates to near zero, quantitative easing (buying government bonds with newly-printed money), and emergency lending programs to businesses.

Confidence Now on the Decline

After peaking at 58%, those with a “great deal” or “fair amount” of trust in the Fed chair have tumbled to 36%, the lowest number in 20 years.

This is likely due to Powell’s hard stance on fighting post-pandemic inflation, which has involved raising interest rates at an incredible speed. While these rate hikes may be necessary, they also have many adverse effects:

  • Negative impact on the stock market
  • Increases the burden for those with variable-rate debts
  • Makes mortgages and home buying less affordable

Higher rates have also prompted many U.S. tech companies to shrink their workforces, and have been a factor in the regional banking crisis, including the collapse of Silicon Valley Bank.

Where does this data come from?

Source: Gallup (2023)

Data Notes: Results are based on telephone interviews conducted April 3-25, 2023, with a random sample of –1,013—adults, ages 18+, living in all 50 U.S. states and the District of Columbia. For results based on this sample of national adults, the margin of sampling error is ±4 percentage points at the 95% confidence level. See source for details.

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