30 June 2004: The Fed starts its first rate hikes in four years
On June 30, 2004 the Federal Reserve raised its key rate from 1% to 1.25%, its first increase in four years. It went on to raise rates at 17 consecutive meetings in quarter-point steps, reaching 5.25% by 2006. The slow, predictable pace kept borrowing cheap for a long time, and the housing boom roared on. Cash savers waited years for decent returns.
The lesson: Gradual tightening can leave easy money in place long enough to inflate the next bubble.
What it meant for investors
$1,000 in US Treasury bills (cash) at the start of 2005 → $1,472 today, vs $5,763 in the S&P 500.
We start the clock at the start of 2005, the first year in our price data after the event. That is 1.5 times the money, but $4,290 less than a plain index fund made over the same years.
What US Treasury bills (cash) teaches: Cash is safe in nominal terms only; over long periods its real return hovers near zero, so the price of safety is giving up growth.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 2005 | $180 | $1,472 | $5,763 |
| 2007 | $200 | $1,325 | $4,789 |
| 2008 | $210 | $1,262 | $4,626 |
green = beat the S&P 500 · red = lost money
What if you bought US Treasury bills (cash)? Every starting year and the full story →
More US Treasury bills (cash) history
- 16 May 2000: The Fed raises rates by half a point to 6.5%
- 16 December 2008: The Fed cuts rates to zero
- 23 December 1913: The Federal Reserve is born
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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