Coming off historically low post-pandemic interest rates, the Fed has taken very aggressive actions over the past two years to rein in inflation. From March 2022 to July 2023, the Federal Open Market Committee raised the federal funds target rate by 525 basis points, marking the fastest tightening cycle in 40 years, which now appears to be over. From 2004 to 2006, the Fed raised interest rates by a total of 425 basis points, but other than that, the past 40 years of tightening cycles have not even come close to the current one in scope and speed. Prior to that, the federal funds rate peaked at nearly 20% in 1980/1981, when the Fed was battling record high inflation.
“Since the beginning of last year, the FOMC has significantly tightened its stance on monetary policy,” Powell said in a press conference Wednesday, raising interest rates by 5.25 percentage points and continuing to reduce securities holdings at a rapid pace. Looking ahead, the chairman said: “While we believe our policy rates are probably at or near the peak of this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, with inflation at 2%. “Continued progress toward the goal is not guaranteed.” “We stand ready to further strengthen our policies if necessary.”
