50 Basis Point Cuts Have Come During Times of Economic Duress

The biggest arrow that the Federal Reserve has in its quiver to spark a moribund economy is the interest rate cut.

The typical interest rate cut is 25 basis points, or 0.25%. A number of times over the past 35 years, the Fed has pulled out their bazooka and done bigger cuts, usually during times of economic duress.

In the summer of 1990, the Federal Fund Rates was at 8% and the country was about to go to war.

After cutting by 25 basis points a number of times, the Federal Reserve accelerated their cuts, as the country headed into a recession.

In February of 1991, the Fed cut by 50 basis points as part of an ongoing campaign to lower the Fed Funds Rate and stimulate the economy.

Over the course of the entire cutting cycle, the Fed would bring the interest rate down from 8% to 3%. In December of 1991 and July of 1992, the Fed would cut by 50 basis points.

In total, the Federal Reserve would cut by 50 basis points three times in the early 1990s.

The Federal Reserve would not cut by 50 basis points again until the dot-com bubble popped in the early 2000s. As we also know, 9/11 occurred during this time as well, and the Fed raced to help prop up the economy.

Over the course of 11 1/2 months, the Federal Reserve would bring the interest rate down from 6% to 1.75%.

This included a total of eight 50 basis point cuts, including five straight 50 bps cuts from January 3rd, 2001 until May 15th, 2001.

After 9/11 took place, the Fed would cut by 50 basis points three straight times - September 17th, 2001, October 2nd, 2001 and November 6th, 2001.

The "dot-com recession" ended in November of 2001, but the Fed remained very concerned about the economy - especially consumer confidence.

The Federal Resreve dropped a surprise 50 basis point rate cut on November 6th, 2002, and followed this up with another 25 basis point cut in June of 2003.

Things went well for the economy until late summer of 2007, when the housing market crash threatened to obliterate the entire economy.

The Federal Reserve cut by 50 basis points in September of 2007. As the economy plunged into disarray in early 2008, the Federal Reserve would cut by 75 basis points, 50 basis points, 75 basis points and 25 basis points.

Things would get even worse, however, as the global financial crisis got even worse.

In October of 2008, the Federal Reserve would cut by 50 basis points twice. In December of 2008, the Federal Reserve would cut by a whopping 100 basis points, which was unprecedented.

The next 50 basis point rate cut would come during the next calamity, which would be COVID-19.

On March 3rd, 2020, the Federal Reserve would cut by 50 basis points.

As things worsened, the Fed pulled out their bazookas once again, cutting by 100 basis points on March 16th, 2020.

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As you can see, the Federal Reserve doesn't pull out the 50+ basis point cut bullet too often, and when it does, there is usually something very significant that is worrying them.

Filed under: General Knowledge