Comparing the Speed of U.S. Interest Rate Hikes
After the latest rate hike on May 3rd, U.S. interest rates have reached levels not seen since 2007. The Federal Reserve has been aggressive with its interest rate hikes as it tries to combat sticky inflation. In fact, rates have risen nearly five percentage points (p.p.) in just 14 months.
In this graphic—inspired by a chart from Chartr—we compare both the speed and severity of current interest rate hikes to other periods of monetary tightening over the past 35 years.
Measuring Periods of Interest Rate Hikes
We measured rate hike cycles with the effective federal funds rate (EFFR), which calculates the weighted average of the rates that banks use to lend to each other overnight. It is determined by the market but influenced by the Fed’s target range. We considered the starting point for each cycle to be the EFFR during the month when the first rate hike took place.
Here is the duration and severity of each interest rate hike cycle since 1988.
|Time Period||Duration |
|Total Change in EFFR
|Mar 1988 - May 1989||14||+3.23|
|Feb 1994 - Feb 1995||12||+2.67|
|Jun 1999 - May 2000||11||+1.51|
|Jun 2004 - Jun 2006||24||+3.96|
|Dec 2015 - Dec 2018||36||+2.03|
|Mar 2022 - May 2023*||14||+4.88|
*We considered a rate hike cycle to be any time period when the Federal Reserve raised rates at two or more consecutive meetings. The 2022-2023 rate hike cycle is ongoing, with the latest hike made on May 4, 2023.
When we last compared the speed of interest rate hikes in September 2022, the current cycle was the fastest but not the most severe. In the months since, the total rate change of 4.88 p.p. has surpassed that of the ‘04-‘06 rate hike cycle. During the ‘04-‘06 cycle, the Federal Reserve eventually decided to pause hikes due to moderate economic growth and contained inflation expectations.
On the other end of the scale, the slowest rate hike cycle occurred in ‘15-‘18 after the Global Financial Crisis. Inflation, as measured by the Personal Consumption Expenditures (PCE) Index, was a mere 0.30% when the first hike occurred. Meeting transcripts reveal that Federal Reserve officials were concerned they may be raising rates too early. However, they agreed to the small quarter percentage point increase to show unity with Fed Chair Janet Yellen, who believed rising oil prices would eventually lead to higher inflation.
End of a Cycle?
The Federal Reserve’s small quarter-point rate hike on May 3 was influenced by a variety of factors. Below is a look at how select indicators have shifted since the first hike occurred in March 2022.
|March 2022||March 2023|
|Annual Growth in Labor Costs||4.5%||4.8%|
|Inflation-Adjusted Growth in Labor Costs||-3.7%||-0.2%|
|Annualized GDP Growth||7.0%||1.1%|
|Over-the-Month Change in Employment|
(Revised data post-rate hike decision in brackets)
Source: Bureau of Labor Statistics, Bureau of Economic Analysis. Inflation is measured by the Personal Consumption Expenditures (PCE) Index. GDP growth for March 2022 is for Q4 2021, which is the data the Fed would have had access to when making its first rate hike decision. Employment has since grown by 253,000 in April 2023.
The unemployment rate remains low and job growth remains positive. Labor costs, in terms of wages and benefits, continue to grow. However, they are essentially flat on an inflation-adjusted basis. Inflation is still above the Federal Reserve’s 2% target, but it has slowed over the past year.
There are also reasons to be cautious. Economic growth has slowed considerably, and the Federal Reserve predicted in March of this year that a “mild recession” would begin later in 2023. Turbulence in the banking sector is also cause for concern, as tighter credit conditions will likely weigh on economic activity.
For now, it seems the Fed may have pressed pause on future interest rate hikes. Its latest statement said it would “determine the extent to which additional policy firming may be appropriate” rather than previous statements which anticipated future hikes.
Visualizing the $105 Trillion World Economy in One Chart
How much does each country contribute to the $105 trillion world economy in 2023, and what nations are seeing their nominal GDPs shrink?
Visualizing the $105 Trillion World Economy in One Chart
By the end of 2023, the world economy is expected to have a gross domestic product (GDP) of $105 trillion, or $5 trillion higher than the year before, according to the latest International Monetary Fund (IMF) projections from its 2023 World Economic Outlook report.
In nominal terms, that’s a 5.3% increase in global GDP. In inflation-adjusted terms, that would be a 2.8% increase.
The year started with turmoil for the global economy, with financial markets rocked by the collapse of several mid-sized U.S. banks alongside persistent inflation and tightening monetary conditions in most countries. Nevertheless, some economies have proven to be resilient, and are expected to register growth from 2022.
Ranking Countries by Economic Size in 2023
The U.S. is expected to continue being the biggest economy in 2023 with a projected GDP of $26.9 trillion for the year. This is more than the sum of the GDPs of 174 countries ranked from Indonesia (17th) to Tuvalu (191st).
China stays steady at second place with a projected $19.4 trillion GDP in 2023. Most of the top-five economies remain in the same positions from 2022, with one notable exception.
India is expected to climb past the UK to become the fifth-largest economy with a projected 2023 GDP of $3.7 trillion.
Here’s a look at the size of every country’s economy in 2023, according to IMF’s estimates.
|Rank||Country||GDP (USD)||% of Total|
|12||🇰🇷 South Korea||$1,722B||1.64%|
|18||🇸🇦 Saudi Arabia||$1,062B||1.01%|
|39||🇿🇦 South Africa||$399B||0.38%|
|41||🇭🇰 Hong Kong||$383B||0.36%|
|46||🇨🇿 Czech Republic||$330B||0.31%|
|51||🇳🇿 New Zealand||$252B||0.24%|
|64||🇵🇷 Puerto Rico||$121B||0.11%|
|77||🇨🇷 Costa Rica||$78B||0.07%|
|80||🇨🇮 Côte d'Ivoire||$77B||0.07%|
|102||🇸🇻 El Salvador||$34B||0.03%|
|110||🇧🇦 Bosnia &|
|116||🇧🇫 Burkina Faso||$21B||0.02%|
|125||🇵🇸 West Bank|
|133||🇧🇳 Brunei Darussalam||$16B||0.01%|
|134||🇲🇰 North Macedonia||$15B||0.01%|
|135||🇬🇶 Equatorial Guinea||$15B||0.01%|
|143||🇰🇬 Kyrgyz Republic||$12B||0.01%|
|151||🇸🇸 South Sudan||$7B||0.01%|
|160||🇸🇱 Sierra Leone||$4B||0.00%|
|168||🇨🇻 Cabo Verde||$2B||0.00%|
|170||🇱🇨 Saint Lucia||$2B||0.00%|
|171||🇹🇱 East Timor||$2B||0.00%|
|174||🇦🇬 Antigua & Barbuda||$2B||0.00%|
|175||🇸🇲 San Marino||$2B||0.00%|
|176||🇸🇧 Solomon Islands||$2B||0.00%|
|180||🇰🇳 Saint Kitts|
|181||🇻🇨 Saint Vincent|
& the Grenadines
|184||🇸🇹 São Tomé|
|187||🇲🇭 Marshall Islands||$0.3B||0.00%|
Note: Projections for Afghanistan, Lebanon, Pakistan, Sri Lanka and Syria are missing from IMF’s database for 2023.
Here are the largest economies for each region of the world.
- Africa: Nigeria ($506.6 billion)
- Asia: China ($19.4 trillion)
- Europe: Germany ($4.3 trillion)
- Middle East: Saudi Arabia ($1.1 trillion)
- North & Central America: U.S. ($26.9 trillion)
- Oceania: Australia ($1.7 trillion)
- South America: Brazil ($2.1 trillion)
Ranked: 2023’s Shrinking Economies
In fact, 29 economies are projected to shrink from their 2022 sizes, leading to nearly $500 billion in lost output.
Russia will see the biggest decline, with a projected $150 billion contraction this year. This is equal to about one-third of total decline of all 29 countries with shrinking economies.
Egypt (-$88 billion) and Canada (-$50 billion) combined make up another one-third of lost output.
In Egypt’s case, the drop can be partly explained by the country’s currency (Egyptian pound), which has dropped in value against the U.S. dollar by about 50% since mid-2022.
Russia and Canada are some of the world’s largest oil producers and the oil price has fallen since 2022. A further complication for Russia is that the country has been forced to sell oil at a steep discount because of Western sanctions.
Here are the projected changes in GDP for all countries facing year-over-year declines:
|Country||Region||2022–23 Change (USD)||2022–23 Change (%)|
|🇨🇦 Canada||North America||-$50.17B||-2.3%|
|🇸🇦 Saudi Arabia||Middle East||-$46.25B||-4.2%|
|🇰🇼 Kuwait||Middle East||-$19.85B||-10.8%|
|🇴🇲 Oman||Middle East||-$9.77B||-8.5%|
|🇨🇴 Colombia||South America||-$9.25B||-2.7%|
|🇦🇪 UAE||Middle East||-$8.56B||-1.7%|
|🇿🇦 South Africa||Africa||-$6.69B||-1.6%|
|🇶🇦 Qatar||Middle East||-$5.91B||-2.6%|
|🇮🇶 Iraq||Middle East||-$2.47B||-0.9%|
|🇹🇱 East Timor||Asia||-$1.67B||-45.7%|
|🇬🇶 Equatorial Guinea||Africa||-$1.35B||-8.2%|
|🇾🇪 Yemen||Middle East||-$1.12B||-5.4%|
|🇸🇸 South Sudan||Africa||-$0.86B||-10.9%|
|🇸🇱 Sierra Leone||Africa||-$0.42B||-10.6%|
|🇸🇷 Suriname||South America||-$0.05B||-1.4%|
The presence of Saudi Arabia, Norway, Kuwait, and Oman in the top 10 biggest GDP contractions further highlights the potential impact on GDP for oil-producing countries, according to the IMF’s projections.
More recently, producers have been cutting supply in an effort to boost prices, but concerns of slowing global oil demand in the wake of a subdued Chinese economy (the world’s second-largest oil consumer), have kept oil prices lower than in 2022 regardless.
The Footnote on GDP Forecasts
While organizations like the IMF have gotten fairly good at GDP forecasting, it’s still worth remembering that these are projections and assumptions made at the beginning of the year that may not hold true by the end of 2023.
For example, JP Morgan has already changed their forecast for China’s 2023 real GDP growth six times in as many months after expectations of broad-based pandemic-recovery spending did not materialize in the country.
The key takeaway from IMF’s projections for 2023 GDP growth rests on how well countries restrict inflation without stifling growth, all amidst tense liquidity conditions.
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