Fact Check: "Fed's interest rate adjustments are typically just a quarter-point!"
What We Know
The Federal Reserve (Fed) uses various tools to adjust interest rates, with the federal funds rate being a primary focus. The Federal Open Market Committee (FOMC) sets a target range for this rate, which is the interest rate at which depository institutions lend reserve balances to each other overnight. Historically, the Fed has made adjustments in increments of 25 basis points (0.25 percentage points) during most of its rate changes, particularly in the years following the 2008 financial crisis and during the normalization process that began in December 2015 (Open Market Operations).
However, there have been instances where the Fed has opted for larger adjustments. For example, in May 2022, the Fed raised interest rates by 50 basis points, marking the largest increase since 2000 (Federal Funds Rate History). This indicates that while quarter-point adjustments are common, they are not the only method employed by the Fed.
Analysis
The claim that "Fed's interest rate adjustments are typically just a quarter-point" is partially true. The Fed has indeed favored 25 basis point changes in many of its adjustments, especially in the years leading up to and during the post-2008 recovery. This approach was part of a strategy to gradually normalize monetary policy without shocking the economy (Open Market Operations).
However, the Fed's history also includes larger rate hikes, particularly in response to significant economic conditions. For instance, the decision to raise rates by 50 basis points in 2022 was a response to rising inflation and economic pressures, demonstrating that the Fed is willing to implement larger changes when deemed necessary (Fed keeps rates steady but pencils in two cuts by end of 2025; Fed Sees Higher Inflation and Lower Growth Ahead).
The reliability of the sources used in this analysis is high. The Federal Reserve's official communications and reputable financial news outlets provide accurate and timely information regarding monetary policy. However, it is essential to consider the context of each rate change, as economic conditions can lead to variations in the Fed's approach.
Conclusion
The claim that "Fed's interest rate adjustments are typically just a quarter-point" is Partially True. While the Fed has frequently used quarter-point adjustments, especially in stable economic conditions, it has also implemented larger changes when necessary. This variability indicates that while the quarter-point adjustment is common, it is not the sole method of interest rate adjustment employed by the Fed.
