Line chart of the federal funds target rate from January 1971 to March 2024. The chart shows that the terminal rate for the Fed during an interest rate hike cycle has been lower than the previous cycle. The exception is the current rate hike cycle, where the Fed has raised interest rates more than in the previous cycle to offset sharp inflation increases post pandemic.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from March 1, 1971, to March 31, 2024. For illustrative purposes only. Fed = Federal Reserve.
Key Takeaways
- We believe the Fed has softened its stance toward further hikes and most likely has reached its terminal policy rate for this cycle. The latest Fed dot plot implies three potential rate cuts in 2024.
- Over the past four decades, policy interest rates had topped out at progressively lower levels during periods of monetary policy tightening, eventually pushing the economy into a recession. The current rate-hike cycle has broken the previous downward trend and has yet to result in an economic slowdown.