Interest rates rose dramatically in 2022, causing an abrupt shift in banking conditions. The increase in the federal funds target rate in 2022 was the largest and fastest since the 1980s and followed an extended period of low interest rates. Intermediate and longer-term rates also rose but at a slower pace, causing the yield curve to rise and invert. Interest rates affect banks through earnings, lending, funding costs, and the fair value of assets. This article examines the increase in interest rates in 2022 and compares the resulting changes in banking outcomes with changes that occurred during 2004 to 2006 (2004 cycle), when interest rates rose by nearly the same magnitude.
Last Updated: November 19, 2025