At the start of 2022, the Federal Reserve's benchmark interest rate was between zero and a quarter percent. The central bank had set that rate in 2020 as a way to stimulate the global economy amid a pandemic-induced mini-recession. 

Two years later, the situation had changed. The economy was rebounding with a vengeance. Profits were rising. Unemployment was low. Wages were high. 

At the same time, inflation was nearing its highest levels in four decades (7.5 percent in January, 2022 ), and the Fed was facing increasing pressure to do something about it. 

The central bank had kept rates low for almost a full decade to stimulate growth following the Great Recession of 2008. Now it was facing a very different problem, which arguably required a different approach. While some economists argued that higher rates would not bring down the largely supply-driven inflation, others urged the Fed to act quickly and decisively. 

This was the essence of the so-called transitory debate, in which economists and policymakers fiercely debated for the first time in decades the causes and possible solutions to high inflation. At stake was the question of how painful bringing down prices was going to be for the U.S. 

Would the supply chain issues simply work themselves out? Or would the Fed have to intervene? 

Even now, it's debatable who was right or wrong. (It could take years to settle that question). But in the short-term at least, the hawks prevailed, and the Fed started raising rates. 

In March 2022 came the first rate hike. It was a modest 25-basis-point increase (which means a quarter of a percent). While the move rattled markets that were used to easy money, it was hardly the wallop some market participants were calling for. That would come a little later.  

Inflation, meanwhile, continued to rise. The consumer price index hit a peak of 9.1 percent in June, more than three months after the Fed began its tightening cycle. As many experts pointed out, the effect of Fed policy often comes with a lag, so it was hard to say if it was working. 

After upping the ante slightly in May with a 50-basis-point hike, the Fed in June announced a 75-basis-point hike, the biggest increase since 1994. This was only the beginning of the escalation. Over the second half of the year, there were three more 75-basis-point hikes. 

In the midst of this drubbing, inflation actually began to come down, though it's not clear that the Fed was responsible. The global economy's supply chain issues began to ease, and with that came lower production costs, thus moderating prices for durable goods. 

In July the year-over-year rate of the consumer price began a slow decline, hitting 7.1 percent in November. 

While this is still historically high, the number was moving in the right direction — just not enough for the Fed. The central bank moderated its stance in December with a half-point hike rather than another three-quarters-of-a-percent increase, but hinted that the job was far from over, and that more hikes are coming in 2023. 

Fed Chair Jerome Powell also stressed that the Fed's main target was the tight job market. Now that inflation was moderating for durable goods, services were fast becoming the main contributor to inflation. The cost of services, crucially, are more closely tied to wages, which are experiencing upward pressure from the low level of unemployment. 

"The biggest cost by far in that sector is labor, and we do see a very, very strong labor market, one where we haven't seen much softening, where job growth is very high, where wages are very high, [where] vacancies are quite high," said Powell. "Really there's an imbalance in the labor market between supply and demand."

In the meantime, all those rate increases have started to catch up with the economy. In November, the average retail credit card annual percentage rate (APR) reached a record high of 26.72 percent, up from 24.35 percent a year ago, according to Bankrate. Auto loan rates likewise have skyrocketed, and mortgage rates have effectively doubled from 2021.