Visualizing 40 Years of U.S. Interest Rates
In 2022, the Federal Reserve hiked interest rates by 400 basis points in one of the fastest rate increases in decades. In May, it raised rates to a range of 5.0-5.25%, a 16-year high.
Yet in spite of these increases, rates still fall below historical averages.
In Part 1 of our Understanding Market Trends series from Citizens, we show interest rate trends over modern history, and the implications of increasingly hawkish monetary policy in today’s environment.
U.S. Interest Rates: Reversing the Trend
For decades, U.S. interest rates have fallen due to structural factors including slower GDP and employment growth.
But with COVID-19, trillions in fiscal stimulus, and Russia’s invasion of Ukraine, demand dynamics have dramatically shifted. U.S. inflation hit 40-year highs, met with a strong labor market. As a result, the Federal Reserve has made aggressive moves to raise rates to prevent the economy from overheating.
Below, we show average annual 10-year Treasury yields, a proxy for U.S. interest rates, and their annual percentage change since 1980. Data is as of May 2, 2023.
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Year Average U.S.
Interest Rate Annual Percentage
Change
2023* 3.6% -11.3%
2022 3.0% 155.3%
2021 1.5% 63%
2020 0.9% -52%
2019 2.1% -29%
2018 2.9% 12%
2017 2.3% -2%
2016 1.8% 8%
2015 2.1% 5%
2014 2.5% -29%
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Over the last four decades, the highest average annual interest rate was 13.9% in 1981, while the lowest was 0.9% in 2020.