Fed Funds Rate History with Its Highs, Lows, and Charts

The Federal Reserve prefers to keep the fed funds rate in a 2% to 5% sweet spot that maintains a healthy economy. In this range, the nation's gross domestic product grows between 2% and 3% annually, and the natural unemployment rate is between 4.5% and 5%. Price increases remain below the Fed's inflation target of a 2% core rate. The fed funds rate was 2.00% as of Sept. 18, 2019.

There were times in history when the nation's benchmark interest rate was well above this sweet spot to curb runaway inflation. Between 2008 and 2015, it was well below the target to stimulate economic growth. Once you see how the Fed changed the fed funds rate, you will understand how it managed both inflation and recession.

The fed funds rate reached a high of 20% in 1979 and 1980 to combat double-digit inflation. The inflation began in 1973 after President Richard Nixon disengaged the dollar from the gold standard. Inflation tripled from 3.9% to 9.6%. The Fed doubled interest rates from 5.75% to a high of 11%. Inflation continued to remain in the double digits through all of 1974. It lasted until April 1975. The Fed kept raising the fed funds rate to a peak of 13% in July 1974. It dramatically lowered the rate to 7.5% in January 1975.

These sudden changes, known as stop-go monetary policy, confused businesses. They kept prices high to stay ahead of the Fed's interest rate spikes. That only made inflation worse. Fed leaders learned that managing inflation expectations was a critical factor in controlling inflation itself.

In 1979, Federal Reserve chair Paul Volcker ended the Fed's stop-go policy. He raised rates and kept them there to finally end inflation. That created the 1980 recession but thoroughly ended double-digit inflation. It hasn't been a threat since.

The all-time low was 0.25%. That's effectively zero. The Fed lowered it to this level on December 17, 2008. It was the 10th rate cut in a little more than a year. The Fed didn't resume raising rates until December 2015. 

Before this, the lowest fed funds rate was 1% in 2003 to combat the 2001 recession. At the time, there were fears that the economy was drifting toward deflation.

The charts below show the targeted fed funds rate changes since 1971. Until October 1979, the Federal Open Market Committee didn't announce its target interest rate after meetings. The target rate was inferred by an archived chart published by the Federal Reserve Bank of New York. The bank adjusted the rate through open market operations. As a result, the rates changed gradually, even in between meetings. Businesses were forced to guess what the rates would be. The Fed tried to fight inflation without managing the expectations of inflation.

In 1979, the Fed began targeting the money supply to fight inflation. As a result, the fed funds rate fluctuated a great deal between 1979 and 1982. In 1982, the Fed returned to targeting the fed funds rate specifically.

In February 1994, the FOMC formally announced its policy changes for the first time. Since then, its announcements make it clear what it wants the interest rate to be. This manages expectations of inflation. It minimizes disruptions caused by surprises from the Fed.

The Federal Reserve Bank of St. Louis publishes a complete history of the effective fed funds rate since 1954. The Fed also has transcripts of all meetings since 1936.

1971: GDP = 3.3%, Unemployment = 6.0%, Inflation = 3.3%

1972: GDP = 5.3%, Unemployment = 5.2%, Inflation = 3.4%

1973: GDP = 5.6%, Unemployment = 4.9%, Inflation = 8.7% 

1974: GDP = -0.5%, Unemployment = 7.2%, Inflation = 12.3%

1975: GDP = -0.2%, Unemployment = 8.2%, Inflation = 6.9%

1976: GDP = 5.4%, Unemployment = 7.8%, Inflation = 4.9%

1977: GDP = 4.6%, Unemployment = 6.4%, Inflation = 6.7%

1978: GDP = 5.5%, Unemployment = 6.0%, Inflation = 9.0%

1979: GDP = 3.2%, Unemployment = 6.0%, Inflation = 13.3% 

1980: GDP = -0.3%, Unemployment = 7.2%, Inflation = 12.5%

1981: GDP = 2.5%, Unemployment = 8.5%, Inflation = 8.9%

1982: GDP = -1.8%, Unemployment = 10.8%, Inflation = 3.8%

1983: GDP = 4.6%, Unemployment = 8.3%, Inflation = 3.8%

1984: GDP = 7.2%, Unemployment = 7.3%, Inflation = 3.9%

1985: GDP = 4.2%, Unemployment = 7.0%, Inflation = 3.8%

1986: GDP = 3.5%, Unemployment = 6.6%, Inflation = 1.1%

1987: GDP = 3.5%, Unemployment = 5.7%, Inflation = 4.4%  

1988 : GDP = 4.2%, Unemployment = 5.3%, Inflation = 4.4%

1989: GDP = 3.7%, Unemployment = 5.4%, Inflation = 4.6%

1990: GDP = 1.9%, Unemployment = 6.3%, Inflation = 6.1%

1991: GDP = -0.1%, Unemployment = 7.3%, Inflation = 3.1%

1992: GDP = 3.5%, Unemployment = 7.4%, Inflation = 2.9%

1993: GDP = 2.8%, Unemployment = 5.5%, Inflation = 2.7%. 

• Clinton took office in 1993. Fed made no changes.

1994: GDP = 4.0%, Unemployment = 5.5%, Inflation = 2.7%

1995: GDP = 2.7%, Unemployment = 5.6%, Inflation = 2.5%

1996: GDP = 3.8%, Unemployment = 5.4%, Inflation = 3.3%

1997: GDP = 4.4%, Unemployment = 4.7%, Inflation = 1.7% 

1998: GDP = 4.5%, Unemployment = 6%, Inflation = 1.6%

1999: GDP = 4.8%, Unemployment = 6%, Inflation = 2.7%

2000: GDP = 4.1%, Unemployment = 6%, Inflation = 3.4%

2001: GDP = 1.0%, Unemployment = 6%, Inflation = 1.6%

2002: GDP = 1.7%, Unemployment = 6%, Inflation = 2.4%

2003: GDP = 2.9%, Unemployment = 6%, Inflation = 1.9%

2004: GDP = 3.8%, Unemployment = 6%, Inflation = 3.3%

2005: GDP = 3.5%, Unemployment = 6%, Inflation = 3.4%

2006: GDP = 2.9%, Unemployment = 6%, Inflation = 2.5% 

2007: GDP = 1.9%, Unemployment = 6%, Inflation = 4.1%

2008: GDP = -0.1%, Unemployment = 6%, Inflation = 0.1%

Between 2008 and 2015, the Fed kept the rate at zero. The recession ended in June 2009.

2015: GDP = 2.9%, Unemployment = 6%, Inflation = 0.7% 

2016: GDP = 1.6%, Unemployment = 4.6%, Inflation = 2.1% 

2017: GDP = 2.4%, Unemployment = 4.1%, Inflation = 2.1%

2018: GDP = 2.9%, Unemployment = 3.9%, Inflation = 1.9%

2019: Q2 GDP = 2.1%, June Unemployment = 3.7%, May Inflation = 2.0%

(Sources: Prior to 1990, "Archive," Federal Reserve Bank of New York. " H-15 Data Download," Federal Reserve. Since 1990, "Open Market Archive," Federal Reserve. "A History of Fed Leaders and Interest Rates," The New York Times, December 16, 2015. "History of Recessions," TheBalance.com. "Inflation," Bureau of Labor Statistics.)