Fact Check: "Fed's interest rate adjustments typically only change by a quarter point!"
What We Know
The Federal Reserve (Fed) uses various tools to implement monetary policy, with open market operations being a key method for adjusting the federal funds rate. Historically, the Fed has favored making changes in increments of 25 basis points (or a quarter point) during many of its adjustments, particularly in the years following the 2008 financial crisis (Open Market Operations). This approach was part of a broader strategy to maintain economic stability and support recovery.
However, there have been instances where the Fed has made larger adjustments. For example, during periods of significant economic stress or inflationary pressures, the Fed has opted for changes greater than 25 basis points. In recent years, projections have indicated that policymakers may consider varying increments based on economic conditions (Fed keeps rates steady but pencils in two cuts by end of 2025).
Furthermore, the historical context shows that before 1990, the Fed did not explicitly target a set federal funds rate, leading to less predictable adjustments (Federal Funds Rate History 1990 to 2024).
Analysis
The claim that the Fed's interest rate adjustments "typically only change by a quarter point" is supported by historical trends, particularly in the post-2008 recovery period when 25 basis point changes became the norm. This method allows for gradual adjustments to monetary policy, which can help manage market expectations and reduce volatility (Open Market Operations, Fed Sees Higher Inflation and Lower Growth Ahead).
However, the assertion overlooks the complexity of the Fed's decision-making process. The Fed has made larger adjustments when necessary, indicating that while 25 basis points is a common practice, it is not the only approach. For instance, in response to rapid inflation or economic crises, the Fed has implemented more substantial rate changes (Fed keeps rates steady but pencils in two cuts by end of 2025, Fact Check: Fed's interest rate adjustments are typically just a ...).
The reliability of the sources used in this analysis is generally high, as they include official statements from the Federal Reserve and reputable news outlets that cover economic policy extensively. However, it is essential to recognize that interpretations of the Fed's actions can vary based on the economic context and the specific challenges faced at any given time.
Conclusion
The verdict on the claim that "Fed's interest rate adjustments typically only change by a quarter point" is Partially True. While it is accurate that the Fed has frequently utilized 25 basis point increments in its adjustments, particularly in recent years, this does not encompass the entirety of its monetary policy actions. The Fed retains the flexibility to implement larger changes when economic conditions warrant such actions.
