27 August 2020: The Fed changes how it targets inflation
At the virtual Jackson Hole symposium, Fed chair Jerome Powell announced a new framework: the Fed would aim for inflation that averages 2 percent over time, meaning it would tolerate running above target after periods below it. The change signaled that rates would stay low for a long time. Within a year inflation was running far above 2 percent, and the Fed soon had to raise rates aggressively.
The lesson: Central bank promises about the future depend on conditions they cannot fully predict or control.
What it meant for investors
$1,000 in US Treasury bonds at the start of 2020 → $929 today, vs $2,092 in the S&P 500.
We start the clock at the start of 2020, the year it happened. That is a loss of $71.43, while a plain index fund over the same years made $1,092.
What US Treasury bonds teaches: Bonds bought at very low yields carry real price risk, because the starting yield is the best guide to future bond returns.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 2015 | $480 | $1,083 | $3,301 |
| 2018 | $490 | $1,061 | $2,519 |
| 2020 | $560 | $929 | $2,092 |
green = beat the S&P 500 · red = lost money
What if you bought US Treasury bonds? Every starting year and the full story →
More US Treasury bonds history
- 4 February 1994: The Fed starts the great bond massacre
- 18 March 2009: The Fed fires its bazooka
- 15 June 2022: The Fed hikes 75 basis points
- 5 August 2011: S&P strips the US of its AAA rating
- 6 October 1979: Volcker's Saturday Night Special
- 3 November 2010: The Fed launches QE2
Could you have called it at the time? The wheel picks the year, you pick the position, ten seconds a pick.
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