Learning from History: How Long Will the Fed's Rate Hike Cycle Continue? The October FOMC meeting is next week, and barring any surprises, there will be no rate hike. Will this mean the end of the rate hike cycle? Historically, the answer is most likely no. After reviewing the original materials from FOMC meetings since 1994, we can easily see that: Once a rate hike cycle begins, the likelihood of only one hike is very low; multiple hikes are the norm. This article is based on an analysis of the original materials from the FOMC meetings since 1994. The analysis includes the number of rate hikes in each cycle, the pace, the reasons for its initiation, and its termination. This may help us understand the current rate hike cycle. Before beginning the review, it's necessary to explain why the author chose 1994 as the starting point for this study. This is because in 1994, the Fed began using the federal funds rate as its publicly disclosed operational target, and since then, the trajectory of the Fed's monetary policy cycle has become transparent and clear. Let's travel back in time to 1994: February 1994 - February 1995: Proactive Interest Rate Hikes This interest rate hike cycle began in February 1994 and ended in February 1995, lasting one year with a total of seven hikes, accumulating a 300 basis point (BP) increase to 6%. In terms of pace, the first half (February 1994 - May 1994) saw rapid, incremental increases, with four consecutive policy meetings during this period, accumulating a 125 BP increase. The second half (July 1994 - February 1995) was much stronger, with three out of six policy meetings during this period resulting in rate hikes. Each hike was spaced one policy meeting apart, but the increase was never less than 50 BP, accumulating a 175 BP increase. Inflationary pressures were not significant at the time. In February 1994, the CPI was only 2.5%, and the core CPI was only 2.8%. The peak core CPI during the entire rate hike cycle was only 3.0%. So why did the Federal Reserve raise interest rates for a full year? This was because prior to 1994, the Federal Reserve had maintained an easing cycle for nearly five years, lowering interest rates from 9% to 3%. At the then-current inflation level, real interest rates had become very low, and there was a risk of inflation resurgence. The Federal Reserve decided on a preventative rate hike, believing that acting sooner rather than later was better. At the February 1994 policy meeting, Federal Reserve officials believed: ...History has shown that delaying anti-inflationary policy actions (rate hikes) will have inflationary consequences and drag down the economy. Five months after the last rate hike, in July 1995, the Federal Reserve began to cut rates, officially ending the rate hike cycle. The main reason driving the Federal Reserve to cut rates was that many growth indicators had stagnated, and the economy was at risk of recession. March 1997: A Unique Case of a Single Rate Hike In March 1997, the Federal Reserve raised interest rates by 25 basis points to 5.5%, and then maintained the rate unchanged until a rate cut in September 1998. This is the only case where a rate hike cycle only involved one increase. At the time of this rate hike, core CPI was only 2.5%, and the Fed acknowledged in its meeting minutes that inflation was not high and showed no signs of accelerating. So why did the Fed raise rates then? This was because the Fed saw signs of a potential upward trend in inflation from the then-tight labor market and strong aggregate demand. Moreover, the preemptive rate hike in 1994 had not caused a recession, and the Fed had already tasted the benefits, so it chose to preemptively strike again. In its post-meeting policy statement, the Fed characterized this rate hike as: "A prudent step that affords greater assurance of prolonging the current economic expansion." However, subsequent data refuted the Federal Reserve's inflation predictions, so the Fed remained on hold until September 1998, a year and a half later, when the impact of Russia's sovereign debt default forced the Fed to begin cutting interest rates as a countermeasure. June 1999 - May 2000: The Interest Rate Hike That Bursts the Dot-com Bubble This round of interest rate hikes began in June 1999 and ended in May 2000, lasting nearly a year and involving eight policy meetings. Six of these meetings saw rate hikes, with the first five hikes at 25 basis points each and the final hike at 50 basis points, totaling a 175 basis point increase to 6.5%. In terms of pace, this round of rate hikes was relatively compact, skipping only October and December 1999, with three consecutive hikes in 2000. It is worth noting that, like the 1994 round, the final rate hike in this round was 50 basis points. This interest rate hike still had a preventative function. The minutes of the June 1999 meeting show that the Federal Reserve emphasized that a small, preemptive rate hike would help avoid further inflationary setbacks. In fact, at that time, the US core CPI was only 2.0%. What led the Fed to judge that inflation might worsen? On the one hand, there was the traditional reason—a tightening supply and demand in the job market. On the other hand, there was a new challenge—the internet. Like AI today, the internet at that time also drove a significant rise in the stock market. The resulting wealth effect boosted aggregate demand, but the growth brought by the internet on the supply side was still an unrealized "check." This mismatch between supply and demand meant that inflation could worsen. It was this round of interest rate hikes that burst the internet bubble. The internet bubble peaked on March 10, 2000, with the Nasdaq closing at 5048 points that day, after which it began a downward spiral. The continuous decline in the stock market prompted the Federal Reserve to temporarily cut interest rates by 50 basis points in January 2001, seven months after the last rate hike. At this meeting, Greenspan subtly acknowledged that the 50 basis point (BP) rate hike in May 2000 was somewhat excessive. June 2004 - June 2006: Uninterrupted Rate Hikes This rate hike cycle was the most continuous and evenly spaced in the history of the Federal Reserve. During this period, 17 policy meetings all saw rate hikes, each by 25 BP, accumulating to a total of 425 BP to 5.25%. In May 2004, core CPI was only 1.7%, but it had already risen for five consecutive months, indicating a less than optimistic situation. Clearly, Greenspan, the "mastermind," did not want to fall behind the curve. To prevent runaway inflation, the Federal Reserve began raising interest rates. However, to avoid excessive market shock, Federal Reserve officials unanimously agreed that this rate hike cycle should proceed gradually (a series of gradual or "measured" policy moves). In February 2006, the Federal Reserve Chairman changed, and Bernanke took over, but this rate hike cycle was not interrupted. Interest rate cuts didn't occur until September 2007, by which time the subprime mortgage crisis had already been ignited, and a run on the financial markets had begun. To stem the crisis, the Federal Reserve cut interest rates by 50 basis points. This was one year and three months after the last rate hike. December 2015 - December 2018: The Longest and Most Moderate Rate Hike Cycle This rate hike cycle was the longest in history, but the magnitude and pace were quite moderate: During this period, only 9 out of 25 policy meetings resulted in rate hikes, accumulating a total increase of 225 basis points to 2.25%-2.50% (in December 2008, the Fed began using the federal funds rate range as its operational target), and there was always an interval between rate hikes; there were never consecutive rate hikes. Even the first rate hike (December 2015) and the second (December 2016) in this cycle were separated by a year. This is because the primary goal of this rate hike cycle was to normalize monetary policy, rather than to curb inflation. Following the subprime mortgage crisis, the US maintained near-zero interest rates for an extended period. After the economy began to recover, the Federal Reserve needed to raise interest rates to create room for monetary policy maneuvering in case of a future recession. However, at that time, the US economy was not strong enough to withstand large, rapid interest rate hikes, so the Fed had to proceed cautiously. In July 2019, the Fed cut interest rates by 25 basis points to offset the impact of the trade war on the US economy. This was seven months after the last rate hike. March 2022 - July 2023: The Most "Aggressive" Rate Hike This round of rate hikes was the most "aggressive" tightening cycle since 1994. During this period, 11 out of 12 policy meetings saw rate hikes, including four increases of 75 basis points each, accumulating a total increase of 525 basis points to 5.25%-5.50%. Unlike the preventative interest rate hikes during Greenspan's era, this round of rate hikes was somewhat delayed. This was partly because, under Powell's leadership, the Federal Reserve adopted "Factorious Average Inflation Targeting (FAIT)," which allowed inflation to "moderately exceed 2%" for a period afterward to compensate for the long-term inflation below 2% following the subprime mortgage crisis, thus bringing the long-term average inflation back to 2%. In retrospect, FAIT proved to be an ill-timed reform. This mechanism may have been suitable for the economic recovery period after the subprime mortgage crisis, but times have changed. The pandemic spurred a significant expansion of US fiscal policy, coupled with supply chain disruptions caused by events such as the Russia-Ukraine conflict, leading to a surge in inflation. Faced with rising inflation, the Federal Reserve did not intervene promptly, instead waiting and missing the opportunity to nip inflation in the bud. To tame inflation and prevent inflation expectations from completely spiraling out of control, the Federal Reserve had to resort to aggressive interest rate hikes. Inflation gradually declined after the rate hikes, culminating in the final rate increase of 25 basis points in July 2023. With weakening employment, the Federal Reserve began cutting interest rates in September 2024, 14 months after its last rate hike. How long will this rate hike cycle last? Under the triple impact of tariffs, war, and AI, inflationary pressures resurfaced in 2026, prompting the Fed to raise rates again this September. So how long will this rate hike cycle last, and when will rate cuts occur? This is a difficult question to predict precisely, but based on historical rate hike cycles, we can still make a reasonable estimate. Looking at the rate hike cycles reviewed above, we can see that: A single rate hike is the exception; multiple rate hikes are the norm. Gap between two rate hikes is also common. The time between the last rate hike and the first rate cut is usually more than six months. Considering current oil price trends and the growth rate of AI investment, further rate hikes are highly likely. According to the dot plot from the September FOMC meeting, the most mainstream view is that two more rate hikes are expected before the end of 2027 (supported by 8 out of 18 committee members). Based on this assumption and past experience with interest rate hike cycles, a more optimistic scenario is possible: A rate hike occurs in December 2026, followed by a skipped hike at the first Federal Reserve meeting in 2027 (end of January), and another hike at the second meeting in 2027 (March). Rates are then kept unchanged thereafter. In this scenario, it would take anywhere from six months (September 2027) to a year (end of the first quarter of 2028) or even longer to see another rate cut. It is worth noting that the above prediction is based on the current schedule of the 2027 meetings on the Federal Reserve's official website. However, Fed Chairman Warsh is considering reducing the number of meetings from eight to six (click to learn more). If this is implemented, the timing of rate hikes and cuts will change accordingly.