The federal funds rate from 1981 to the present

• The Federal Reserve’s decisions significantly impact the economy, influencing borrowing costs for consumers, the job market and inflation.

• The Fed’s monetary policy has shifted significantly over the years, from combating high inflation in the 1980s to dealing with recessions and financial crises in the 2000s and 2010s. The current era is marked by a pandemic and soaring inflation, leading to the most aggressive rate hikes in 40 years.

• After cutting interest rates a cumulative 1.75 percentage points since September 2024, the Federal Reserve’s key borrowing benchmark currently sits in a target range of 3.5-3.75%.

Interest rates are the Federal Reserve’s most powerful lever for steering the U.S. economy — and after years of keeping borrowing costs at their highest level in decades, the Fed has finally been reversing course.

Policymakers didn’t lower interest rates at their January 2026 meeting, but they’ve already reduced borrowing costs by 1.75 percentage points since lifting their key benchmark rate to 5.25-5.5% more than two years ago. The federal funds rate is currently in a target range of 3.5-3.75%.

Even so, the borrowing costs that consumers pay remain higher than they were at any point in the decade leading up to the pandemic, according to a Bankrate analysis of historic Fed moves.

When it comes to the world’s most powerful central bank, the past can often be a guide. Sometimes, the Fed will cut interest rates as a proactive step to help stave off an economic slowdown. Other times, officials will keep interest rates high or hike them aggressively, tolerating a weaker economy if it means keeping inflation in check. The current cycle shows the Fed walking a fine line: balancing stubborn inflation against a labor market that’s beginning to lose momentum.

To help consumers understand the historical significance of the Fed’s rapid rate hikes in the post-pandemic era, Bankrate compiled this guide of the Fed’s previous rate moves from 1981 to the present. Interest rates may now seem historically high, but they’re lower than their historic average, the analysis found. Before the Great Recession, the market-driven “effective” federal funds rate averaged 6.38%.

Rate moves are expressed in “basis points,” which are equal to 1/100 of a percentage point. For example, a 75 basis point increase is 0.75 percentage point.

• What is the Federal Reserve, and what does it do?

  The Fed is the central bank of the U.S., tasked with two main economic objectives: price stability and maximum employment. When prices rise too rapidly, the Fed raises interest rates to slow economic growth. When the financial system looks like it might need a bit of a boost, it cuts interest rates to spur spending and hiring. Together, Fed watchers refer to those interest rate decisions as monetary policy.

• What economic factors influence the Federal Reserve’s interest rate decisions?

  The Fed’s interest rate decisions come down to how they’re interpreting their dual mandate of price stability and maximum employment. Typically, Fed officials want to ensure that everyone who wants a job can find one. And when it comes to rising prices, the Fed shoots for a not-too-hot, not-too-cold “goldilocks” level of inflation around 2%. But the job market and inflation have an inverse relationship. A too-hot labor market can make prices rise faster than the Fed prefers, while low inflation might require higher unemployment. The Fed usually raises interest rates to slow inflation and cuts borrowing costs to stimulate demand — and consequently, hiring.

  Beginning in March 2022, the Fed hiked interest rates at the fastest pace in over 40 years, as inflation surged to the highest levels since the 1980s. During the coronavirus pandemic, meanwhile, the Fed slashed borrowing costs to near-zero as lockdowns swept the nation — pushing the U.S. unemployment rate to 14.8%, the highest since the Great Depression.

• Understanding the Fed’s key interest rate, the federal funds rate

  When economists or investors pay attention to the Fed’s rate moves, they’re mainly watching for changes to the U.S. central bank’s key interest rate: the federal funds rate. Fed officials don’t explicitly go to every bank or lender and mandate a certain interest rate. Rather, the benchmark rate that they control acts as a lever for all other types of borrowing and saving rates throughout the economy.

  Like a chain of dominoes falling one by one, a rate cut (or hike) from the Fed translates to cheaper (or more expensive) borrowing costs on almost every purchase a consumer finances: from credit card spending and auto loans to mortgages and home equity lines of credit. A silver-lining for consumers as interest rates rise, yields on certificates of deposit (CDs) and savings accounts also grow. On the flip side, though, lower interest rates from the Fed weigh on depositors’ earnings.

The fed funds rate has never been as high as it was in the 1980s.

The main reason was that the Fed wanted to combat inflation, which soared in 1980 to its highest level on record: 14.6%.

As a result, the U.S. central bank did something that might seem counterintuitive for an institution that strives to maintain the most productive economy possible: It lifted interest rates to get a hold of inflation, even if it meant causing a recession.

The fed funds rate began the decade at a target level of 14% in January 1980. By the time officials concluded a conference call on Dec. 5, 1980, they had hiked the target range by 2 percentage points to 19-20%, its highest ever.

Consumer borrowing costs soared as a result. The average rate on a 30-year fixed-rate mortgage hit the highest on record during the era, spiking to near 20%, Bankrate’s historic data shows.

But the Fed has changed almost as much as interest rates since then. Instead of slowly and gradually moving rates in one direction (up or down), interest rates would often rise, then fall, then rise again.

Rates fell sharply to a target range of 13-14% on Nov. 2, 1981, then shot back up to 15% in the first four months of 1982, then dropped to 11.5-12% on July 20, 1982, records of the moves show. The “effective” fed funds rate averaged 9.97% during this 10-year period. Interest rates haven’t eclipsed 10% since November 1984.

One reason for the volatility: Chair Paul Volcker decided that the best way to combat inflation involved limiting the growth of the money supply, rather than directly targeting interest rates — the way officials control inflation today.

Other differences between today’s Fed and the Fed of the past include a wider target range for the benchmark fed funds rate, sometimes spanning 5 percentage points instead of the 0.25 percentage point window today. Not to mention, the Fed would adjust rates at unscheduled meetings more often than not, after which it wouldn’t release policy statements.

Volcker was the main driver of Fed policy in this decade, leading the Fed until Chairman Alan Greenspan took the post in August 1987.

Critics at the time vilified Volcker for harming the economy. Farmers, for example, drove their tractors to the Fed’s headquarters in Washington, D.C., to protest higher interest rates, according to historians at the St. Louis Fed, while car dealers mailed him car keys of unsold vehicles in coffins.

The moves came with a price: Unemployment soared to almost 11%, at the time the highest since the Great Depression, historic Bureau of Labor Statistics data shows. Inflation, however, stayed away for years, falling to below 2% by 1986.

After a tumultuous few years for the Fed during the Great Inflation, Greenspan faced a much calmer period, though that’s not to say he didn’t have his fair share of challenges during his near 18-year tenure at the helm of the Fed.

After an eight-month recession beginning in August 1990, Greenspan and Co. managed to take the fed funds rate all the way up to a target level of 6.5% in May 2000, the highest of the period. Rates reached a low of 3% in September 1992, the lowest of the decade.

Besides during the early 1990s, the Fed mainly adjusted rates at Federal Open Market Committee (FOMC) meetings, a practice that is in rhythm with today’s Fed. Officials did hike rates on April 19, 1994, at an emergency meeting due to inflation worries, and they cut borrowing costs at an unscheduled Oct. 15, 1998, gathering.

Another noteworthy feat: The U.S. central bank also made its first “insurance” cuts, meaning officials cut interest rates to give the economy an extra boost, not to fight a recession. Such was the case in 1995, 1996 and 1998, when the financial system confronted a share of headwinds ranging from debt default in Russia to a major hedge fund’s collapse.

The longest-serving Fed chair to date, Greenspan is often nicknamed “maestro” for having steered the economy through the longest economic expansion at the time. The Fed unofficially began identifying 2% as its inflation target during this decade — a pivotal decision that would irrevocably change modern monetary policy.

A proponent of deregulation, however, his policies would later be blamed for fueling asset bubbles that led to the dot-com boom and bust and the housing bubble that sparked the 2008 financial crisis.

The 2000s were the Fed’s most rhythmic period yet, with the Fed following clear cycles for both tightening and loosening rates.

To start the decade, the Fed slashed interest rates 13 times to a low of 1% — a range that might’ve been unthinkable for those who remembered rates in the ‘80s — after a stock market bubble in the technology sector burst, kickstarting a recession that was exacerbated by the 9/11 terrorist attacks.

The U.S. central bank then managed to hike interest rates 17 times between 2004 and 2006 — all of those increases in gradual, quarter-point moves — to a high of 5.25%.

That was until the financial crisis of 2008 and the ensuing Great Recession happened, which slammed the brakes on the economy. The Fed then did the unthinkable: It slashed interest rates by 100 basis points to near-zero. Chairman Ben Bernanke led the Fed during this period, which was, at the time, one of its most aggressive economic rescue efforts in Fed history.

During this era, the Fed also unveiled an experimental, unconventional monetary policy tool: quantitative easing, or large scale asset purchases (LSAPs) as they’re formally known. A massive bond-buying program to lower long-term interest rates and give the economy a bigger boost caused the Fed’s balance sheet to balloon, soaring to $4.5 trillion from a starting place of $870 billion.

The Fed couldn’t escape zero rates in the 2010s amid the U.S. economy’s slow recovery from the Great Recession.

Officials would ultimately end up leaving interest rates at rock-bottom until 2015, after which they only hiked interest rates by 25 basis points once per year. That is until 2017, when the Fed hiked rates three times, and 2018, when they hiked them four more times. The fed funds rate peaked at 2.25-2.5%.

Facing tepid inflation and moderating growth, the Fed also decided in 2019 to cut interest rates three times to give the economy a fresh boost — similar to Greenspan’s “insurance” cuts of the 1990s.

• Fed chairs of the decade:

• Peak of the decade: 2.25-2.5%

• Low of the decade: 0-0.25%

The fed funds rate looked like it was about to settle there until the coronavirus pandemic came along, ushering in another era of near-zero rates. The Fed slashed rates to zero across two emergency meetings within 13 days of each other as the gears of the economy came to a halt.

Chair Janet Yellen took the helm of the Fed from Bernanke in February 2014 and steered the economy through its Great Recession recovery until February 2018, when Chair Jerome Powell was installed.

The past few years have felt like a blast from the past for Fed rate-setting, with inflation returning as the No. 1 economic threat in the aftermath of the coronavirus crisis.

The Fed hiked interest rates by a quarter point in March 2022 for the first time since 2018, and it didn’t stop breaking milestones there. The Fed approved the largest rate hike since 2000 during its May 2022 gathering when it raised interest rates by half a percentage point, as well as the largest rate hike since 1994 when it lifted interest rates by three-quarters of a percentage point in June 2022. The Fed followed up on that historic move with three additional 0.75 percentage-point increases.

Officials had to raise rates quickly because they left their foot on the gas for too long. As inflation soared to a 40-year high, officials kept interest rates at near-zero, believing that those massive price pressures were only temporary. They also wanted to give the economy time to recover from the coronavirus pandemic.

Experts say U.S. central bankers usually worry about the wrong conflict. Just as officials spent the 1990s worried about inflation, the Fed has probably spent the early 2020s fearing too-low inflation, says Scott Sumner, monetary policy chair emeritus at George Mason University’s Mercatus Center.

“Central banks tend to focus on fighting the last war,” Sumner says. “If you have a lot of inflation, you get a more hawkish stance. If you’ve undershot your inflation target, then the Fed thinks, ‘Well, maybe we should’ve been more expansionary.’ Powell came into his job with that determination, that if there was another recession, they would be more aggressive. My own view is that the strategy was relatively successful at first but pushed too far.”

• Fed chair of the decade: Jerome Powell (2018-Present)

• Peak of the decade: 5.25-5.5%

• Low of the decade: 0-0.25%

By many standards, however, an entirely different U.S. central bank is steering the boat, meaning officials don’t want to tame inflation with aggressive, volatile rate hikes similar to the 1980s, he adds. Yet, officials have also spoken out against the stop-and-go manner of rate hikes leading up to the Great Inflation of the 1980s.

“The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years,” Powell said in a pivotal 2022 speech at the Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. “Our aim is to avoid that outcome by acting with resolve now.”

Inflation has cooled considerably since the Fed began forcefully hiking rates. Prices in December rose 2.7% from a year ago, more than three times slower than the eye-popping 9.1% annual rate from June 2022, according to the Bureau of Labor Statistics consumer price index (CPI). Yet, price pressures remain above the Fed’s 2% target and have recently shown signs of reaccelerating as businesses pass along higher costs from new tariffs.

The Fed, however, finds itself in an increasingly tricky position. Unemployment has also risen, and job growth has slowed markedly since the Fed started raising interest rates. Concerns about stalling economic growth were a key motivation behind the Fed’s decision to cut interest rates at its final three meetings in 2024 and 2025.

Even with 1.75 percentage points worth of rate cuts so far since September 2024, Fed officials don’t appear eager to move quickly. Officials say they’re keeping a close eye on how factors such as tariffs may impact prices, reiterating that future rate cuts aren’t guaranteed. 

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