Shocks, Recession and 9/11: When the Fed Intervenes

The US Federal Reserve has been in the business of raising or cutting interest rates to better steer the changing dynamics of the American economy. A look at the pivotal moments of rate changes in the last 40 years.

Paul A Volcker (1979 - 1987):

Battling stagnation (1979 to the 1980s)

* In October 1979, Volcker held a late Saturday night news conference to announce a bold new package of measures to tame runaway inflation that was in part a result of oil price increases. The new policy raised the Fed’s benchmark rate by 4 percentage points, to 15.5 per cent, in a month. By late 1980, rates reached a record high of 20 per cent.

* By raising rates in such powerful fashion, Volcker risked sending the economy into recession, which happened twice during his tenure (in 1980 and 1981-82). But by 1983, inflation had fallen below 4 per cent, barely three years after a stretch in which it averaged 14.6 per cent.

Alan Greenspan (1987 - 2006):

Black Monday & economic worries (1987 - 1990s)

* Just a few weeks into Greenspan’s tenure in 1987, the Fed lowered rates after the stock market crashed, and he encouraged banks to continue lending.

* In the early years of Greenspan’s tenure, inflation rose above 5 per cent as the economy improved, and he responded with a sharp increase in interest rates. He faced criticism for failing to cut rates quickly enough as the country fell into a recession in 1990-91.

Rates at historic lows (SEPTEMBER 11 ATTACKS AND AFTER)

* After having presided over what was known as the Great Moderation — nearly two decades of strong growth, modest inflation and low unemployment, with just a few bumps along the way — Greenspan was credited with acting quickly after the terrorist attacks of 9/11, and the ensuing recession.

Ending stimulus (2004)

* As the economy revived, the Fed removed its stimulus programme slowly, raising interest rates at 17 consecutive meetings.

Ben S Bernanke (2006 - 2014):

The Great Recession (2008)

* When Bernanke became chairman in 2006, the economy seemed to be humming along. But after the collapse in housing prices, the economy was plunged into what has become known as the Great Recession.

* After the demise of Lehman Brothers in 2008 brought the financial system to the brink of disaster, Bernanke entered uncharted territory, pushing interest rates nearly to zero. With little leverage on rates, he also persuaded colleagues to start buying bonds, a supplemental strategy to stimulate the economy known as quantitative easing.

Eyeing inflation (2012)

* In January 2012, the Fed formally adopted a 2 per cent inflation target, although it found itself at that point trying to raise inflation to that level rather than driving it down. The Fed was increasingly worried that sluggish inflation was restraining economic growth.

Janet L Yellen (2014-present):

Putting the crisis behind (2008)

* In 2015 the Fed raised interest rates for the first time since the financial crisis. It cited the steady growth of employment and other economic measures, and signalled that it expected to raise rates more quickly in the coming years to prevent the economy from overheating.