16 May 2000: The Fed raises rates by half a point to 6.5%
On May 16, 2000 the Federal Reserve raised its key rate by half a point to 6.5%, its biggest move in years, to cool an economy it feared was overheating. The dot-com bubble was already leaking air. It was the last hike of the cycle: by January 2001 the Fed was cutting again as the economy slowed. Cash in Treasury bills briefly paid more than many investors had seen in years.
The lesson: Rate hikes act with a delay; the last one often lands just as the trouble is beginning.
What it meant for investors
$1,000 in US Treasury bills (cash) at the start of 2000 → $1,656 today, vs $4,626 in the S&P 500.
We start the clock at the start of 2000, the year it happened. That is 1.7 times the money, but $2,970 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 |
|---|---|---|---|
| 2000 | $160 | $1,656 | $4,626 |
| 2003 | $175 | $1,514 | $7,727 |
| 2005 | $180 | $1,472 | $5,763 |
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
- 30 June 2004: The Fed starts its first rate hikes in four years
- 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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