US Federal Reserve rate history: From 2015 to 2024

In its first reduction in almost four years, the U.S. Federal Reserve cut its key lending rate by 0.50 percentage points on September 18, 2024, significantly bringing down borrowing rates just before November’s presidential election.

The Fed attributed this move to recent indicators that suggested that economic activity continued to expand at a solid pace. However, the rate at which commercial banks lend to individuals and companies will be impacted by the Fed’s decision, reducing the cost of borrowing for items from credit cards to mortgages.

What industry analysts are saying

Here are what industry experts have to say about recent Fed rate cuts:

Anuj Goel, CEO at Century Private Wealth

• The Federal Reserve’s decision to implement a larger-than-expected 50 basis point rate cut is a powerful demonstration of the central bank’s resolve to proactively address the mounting risks to the U.S. economic outlook. This aggressive move, which caught many market participants by surprise, reflects the Fed’s growing concerns about the impact of slowing global growth, trade tensions, and persistently low inflation on the domestic economy.
• The Fed’s bold action comes against the backdrop of an economy that, while still expanding, has shown signs of cooling in recent months. The moderation in retail sales growth, coupled with the stagnation in industrial production, highlights the challenges faced by businesses and consumers alike as they navigate an increasingly uncertain economic environment.
• The Fed’s bold move, while not without its risks, demonstrates the central bank’s unwavering commitment to its dual mandate of promoting maximum employment and price stability. As the U.S. economy navigates an increasingly complex and uncertain global environment, the Fed’s decisive leadership and proactive approach will be essential in guiding the nation towards a path of continued growth and prosperity.

Charu Chanana, head of FX Strategy at Saxo Bank

• The key takeaway from the FOMC meeting is clear: there’s immense uncertainty surrounding the path ahead. The first dissent today since 2005 highlights the growing challenges the Fed faces.
• Mixed economic signals have made policymaking more difficult as the Fed struggles to balance various competing forces. This is reflected in the dispersion of the dot plot, where two members now indicate no more rate cuts for 2024, while the median expectation points to another 50bps of cuts. The divergence suggests we could see more than one dissenter in future decisions, especially with the possibility of a 25bps cut in November.
• While the direction of travel is evident, the speed is far less certain. The Fed’s soft landing remains the primary goal, but the revision of the neutral rate higher and limited forward guidance will likely keep markets volatile.

Definition of the U.S. Federal Reserve

The Federal Reserve, sometimes known as the Fed, is the most influential economic organization in the United States and perhaps worldwide. Establishing interest rates, controlling the money supply, and overseeing financial markets are some of its primary duties. It also serves as a lender of last resort in times of financial crises, as the Covid-19 epidemic and the financial collapse of 2008 both proved. The central bank has been grappling with the challenge of mitigating high inflation without jeopardising economic expansion since 2020.

In addition to overseeing member banks and bank holding companies, the Fed is responsible for managing systemic risk in the financial system and directing U.S. monetary policy. The system’s central authority, the seven-member board of governors, is headquartered in Washington, DC. Subject to senate confirmation, the President appoints each member to a 14-year tenure. The group of governors is a member of the Federal Open Market Committee (FOMC), a bigger group that alternately consists of five of the 12 regional bank presidents. The FOMC is in charge of controlling the money supply and establishing interest rate objectives.

Understanding Fed interest rate decisions

Based on changes in the economy, the Federal Reserve adjusts the federal funds’ target rate range. By changing interest rates, the Fed may create situations that fulfil its double goals of maximizing employment and maintaining price stability. This is how it functions: In times of economic overheating, or excessive inflation, the Federal Reserve hikes interest rates; in times of economic weakness, or rising unemployment, it lowers rates.

The gross domestic product (GDP), consumer spending, industrial production, and significant events like a financial crisis, a worldwide epidemic, or a major terrorist attack are just a few of the many data points that the Fed considers while deciding on its monetary policy.

Read more: Three reasons the US Federal Reserve is likely to reduce interest rates on Wednesday

Fed rate hikes: From 2022 to 2024

The Fed meeting dates, the amount of each interest rate adjustment expressed in basis points, or bps, and the resulting federal funds target rate range are listed in the tables below. Interest rates are commonly measured in basis points. A basis point is equivalent to 0.01%, or 1/100th of a percentage point. For example, 50 basis points would be the result of a half-percentage-point shift in an interest rate.

It’s easier to forget that, as recently as the first quarter of 2022, the Federal Reserve was maintaining the federal funds rate at or near zero. In addition, the Fed continued to support the economy by purchasing bonds worth billions of dollars each month. All of this, despite U.S. inflation metrics reaching 40-year highs.

The Federal Reserve acted decisively after determining that it was time to address inflation. The Fed funds rate has been increased by the central bank. It has been increased by more than five percentage points in the previous 16 months. This has been beneficial in lowering the extremely high rates of inflation that were depleting the purchasing power of regular Americans. On September 18, 2024, the Federal Reserve lowered the federal funds rate by 50 basis points. It is to a range of 4.75 percent to 5.00 percent. This signals the start of a new era.

Fed rate cuts: From 2019 t0 2020

The Covid-19 outbreak swept the world in a matter of weeks. Lockdowns were a suggested measure by public health professionals globally. It was mainly to curb the virus’s spread and reduce hospital caseloads. In April 2020 alone, there would be around 20.5 million job losses. And, the unemployment rate would rise to 14.7 percent.

During two unexpected emergency sessions in March 2020, the FOMC made two significant rate decreases. That brought the federal funds target rate range back to zero to 0.25 percent. Even if by May 2020 the economy had resumed growth following the shortest recession on record, the effects of the economic measures used to contain the Covid-19 outbreak are still being felt.

The Fed was worried that the trade spat between the United States and China in 2019 would hurt the economy. And, it would increase jobless rates. It was dubbed a ‘trade war’. The economy benefited from three gradual rate decreases in the second half of 2019.

The Fed’s favoured gauge of U.S. inflation, the core personal consumption expenditures price index (PCE), showed that inflation at the time was far below the central bank’s 2 percent objective. June 2019 saw a 1.7 percent increase in core PCE over the same month last year. It had only increased by 1.9 percent by February 2020.

Fed rate hikes: From 2015 t0 2018

The Fed cut rates to zero in late 2008. It was an effort to assist the U.S. economy in dealing with the aftermath of the 2008 global financial crisis. After seven years, the central bank started gradually hiking rates as the economy started to revive. December 2015 saw the first hike in interest rates. The next rate increase wouldn’t come around until December of that year.

The Federal Reserve stated in a statement accompanying its first rate hike in 2015. “The Committee judges that there has been considerable improvement in labour market conditions this year. And, it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective.” In December 2015, core PCE inflation was 1.1 percent, far below than the Fed’s objective.

Not until March 2018 would it reach 2 percent. The country’s unemployment rate was expected to decrease by an additional 1.5 percentage points. This was over the course of the following four years or so. Early in 2016, China released disastrous economic data. That sent global markets into a tailspin. And, it compelled the Fed to put a one-year hold on further rate rises. The FOMC revised its expectations for monetary policy in 2019. It was after delaying its transition to a more normal course due to another economic storm.

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