Line chart of the federal funds target rate from January 1971 to March 2023. 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.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from March 1, 1971 to March 31, 2023. For illustrative purposes only. Fed = Federal Reserve.
Key Takeaways
- Although we expect two more rate hikes in 2023, we believe that the final number remains flexible and dependent on how the economy and inflation levels continue to evolve.
- Over the past four decades, policy interest rates have topped out at progressively lower levels during monetary policy tightening, eventually pushing the economy into a recession. The current rate-hike cycle has already broken the previous downward trend.