Income Planning · 5 min read
When the Fed Pauses: Cash, Bonds, and the Rate You Lock In
Since 1986 the Fed has paused after raising rates six times; five of those pauses ended with a cut, so cash yields usually fell. But the 10-year Treasury yield was lower a year later only half the time. Matching cash and bond maturities to when the money is needed has been more dependable than waiting to time the next move.
In March 2026 the Federal Reserve held its policy rate at a target range of 3.50% to 3.75% (Federal Reserve, FOMC statements). Every pause like that brings the same question from savers and retirees: keep the money in cash while it still pays well, or lock in a rate before it falls?
The Fed's own history is a better guide than any single meeting. We compared the Fed's policy rate with the 10-year Treasury yield back to 1954 and looked closely at what happened after each time the Fed stopped raising rates and held them steady.
Chart
The Fed's policy rate and the 10-year Treasury yield, 1954 to 2026
Percent, quarterly (first month of each quarter). The Fed sets the short rate; the market sets the 10-year. They often part ways.
- Fed policy rate
- 10-year Treasury yield
Source: Bank for International Settlements (U.S. policy rate: effective fed funds to Dec 1985, FOMC target midpoint after) · Shiller/Yale (10-year, to Sep 2023) · U.S. Treasury (from Oct 2023)
View the data
| Month | Fed policy rate | 10-year Treasury |
|---|---|---|
| Jul 1954 | 0.25% | 2.30% |
| Oct 1954 | 1.13% | 2.43% |
| Jan 1955 | 1.44% | 2.61% |
| Apr 1955 | 1.69% | 2.75% |
| Jul 1955 | 1.75% | 2.90% |
| Oct 1955 | 2.25% | 2.88% |
| Jan 1956 | 2.50% | 2.90% |
| Apr 1956 | 2.75% | 3.18% |
| Jul 1956 | 2.69% | 3.11% |
| Oct 1956 | 3.00% | 3.34% |
| Jan 1957 | 3.00% | 3.46% |
| Apr 1957 | 3.00% | 3.48% |
| Jul 1957 | 2.88% | 3.93% |
| Oct 1957 | 3.50% | 3.97% |
| Jan 1958 | 1.50% | 3.09% |
| Apr 1958 | 0.25% | 2.88% |
| Jul 1958 | 0.38% | 3.20% |
| Oct 1958 | 2.00% | 3.80% |
| Jan 1959 | 2.50% | 4.02% |
| Apr 1959 | 3.00% | 4.12% |
| Jul 1959 | 3.50% | 4.40% |
| Oct 1959 | 4.00% | 4.53% |
| Jan 1960 | 4.00% | 4.72% |
| Apr 1960 | 4.00% | 4.28% |
| Jul 1960 | 3.25% | 3.90% |
| Oct 1960 | 2.75% | 3.89% |
| Jan 1961 | 2.25% | 3.84% |
| Apr 1961 | 0.50% | 3.78% |
| Jul 1961 | 2.50% | 3.92% |
| Oct 1961 | 2.00% | 3.92% |
| Jan 1962 | 1.50% | 4.08% |
| Apr 1962 | 2.50% | 3.84% |
| Jul 1962 | 2.75% | 4.01% |
| Oct 1962 | 3.00% | 3.93% |
| Jan 1963 | 3.00% | 3.83% |
| Apr 1963 | 3.00% | 3.97% |
| Jul 1963 | 3.50% | 4.02% |
| Oct 1963 | 3.50% | 4.11% |
| Jan 1964 | 3.50% | 4.17% |
| Apr 1964 | 3.50% | 4.23% |
| Jul 1964 | 3.50% | 4.19% |
| Oct 1964 | 3.50% | 4.19% |
| Jan 1965 | 4.00% | 4.19% |
| Apr 1965 | 4.13% | 4.20% |
| Jul 1965 | 4.13% | 4.20% |
| Oct 1965 | 4.13% | 4.35% |
| Jan 1966 | 4.50% | 4.61% |
| Apr 1966 | 4.63% | 4.75% |
| Jul 1966 | 5.75% | 5.02% |
| Oct 1966 | 5.75% | 5.01% |
| Jan 1967 | 4.00% | 4.58% |
| Apr 1967 | 4.00% | 4.59% |
| Jul 1967 | 3.75% | 5.16% |
| Oct 1967 | 4.13% | 5.48% |
| Jan 1968 | 4.75% | 5.53% |
| Apr 1968 | 6.25% | 5.64% |
| Jul 1968 | 6.00% | 5.50% |
| Oct 1968 | 6.00% | 5.58% |
| Jan 1969 | 6.38% | 6.04% |
| Apr 1969 | 8.00% | 6.17% |
| Jul 1969 | 8.75% | 6.72% |
| Oct 1969 | 9.00% | 7.10% |
| Jan 1970 | 9.38% | 7.79% |
| Apr 1970 | 8.50% | 7.39% |
| Jul 1970 | 6.75% | 7.46% |
| Oct 1970 | 6.13% | 7.33% |
| Jan 1971 | 4.00% | 6.24% |
| Apr 1971 | 4.25% | 5.83% |
| Jul 1971 | 5.50% | 6.73% |
| Oct 1971 | 5.13% | 5.93% |
| Jan 1972 | 3.13% | 5.95% |
| Apr 1972 | 4.31% | 6.19% |
| Jul 1972 | 4.50% | 6.11% |
| Oct 1972 | 4.88% | 6.48% |
| Jan 1973 | 6.50% | 6.46% |
| Apr 1973 | 7.63% | 6.67% |
| Jul 1973 | 11.22% | 7.13% |
| Oct 1973 | 10.61% | 6.79% |
| Jan 1974 | 9.31% | 6.99% |
| Apr 1974 | 11.00% | 7.51% |
| Jul 1974 | 12.06% | 7.81% |
| Oct 1974 | 9.66% | 7.90% |
| Jan 1975 | 6.76% | 7.50% |
| Apr 1975 | 7.03% | 8.23% |
| Jul 1975 | 6.23% | 8.06% |
| Oct 1975 | 5.65% | 8.14% |
| Jan 1976 | 4.84% | 7.74% |
| Apr 1976 | 5.10% | 7.56% |
| Jul 1976 | 5.32% | 7.83% |
| Oct 1976 | 5.02% | 7.41% |
| Jan 1977 | 4.65% | 7.21% |
| Apr 1977 | 5.12% | 7.37% |
| Jul 1977 | 5.86% | 7.33% |
| Oct 1977 | 6.60% | 7.52% |
| Jan 1978 | 6.79% | 7.96% |
| Apr 1978 | 7.25% | 8.15% |
| Jul 1978 | 8.00% | 8.64% |
| Oct 1978 | 9.35% | 8.64% |
| Jan 1979 | 10.57% | 9.10% |
| Apr 1979 | 10.43% | 9.18% |
| Jul 1979 | 10.81% | 8.95% |
| Oct 1979 | 14.82% | 10.30% |
| Jan 1980 | 13.40% | 10.80% |
| Apr 1980 | 14.64% | 11.47% |
| Jul 1980 | 9.93% | 10.25% |
| Oct 1980 | 13.77% | 11.75% |
| Jan 1981 | 17.25% | 12.57% |
| Apr 1981 | 18.92% | 13.68% |
| Jul 1981 | 17.46% | 14.28% |
| Oct 1981 | 14.44% | 15.15% |
| Jan 1982 | 14.21% | 14.59% |
| Apr 1982 | 15.28% | 13.87% |
| Jul 1982 | 11.41% | 13.95% |
| Oct 1982 | 9.41% | 10.91% |
| Jan 1983 | 8.56% | 10.46% |
| Apr 1983 | 8.84% | 10.40% |
| Jul 1983 | 9.52% | 11.38% |
| Oct 1983 | 9.43% | 11.54% |
| Jan 1984 | 9.35% | 11.67% |
| Apr 1984 | 10.90% | 12.63% |
| Jul 1984 | 11.83% | 13.36% |
| Oct 1984 | 9.99% | 12.16% |
| Jan 1985 | 8.73% | 11.38% |
| Apr 1985 | 8.58% | 11.43% |
| Jul 1985 | 8.61% | 10.31% |
| Oct 1985 | 8.08% | 10.24% |
| Jan 1986 | 7.75% | 9.19% |
| Apr 1986 | 6.75% | 7.30% |
| Jul 1986 | 6.38% | 7.30% |
| Oct 1986 | 5.88% | 7.43% |
| Jan 1987 | 6.00% | 7.08% |
| Apr 1987 | 6.50% | 8.02% |
| Jul 1987 | 6.62% | 8.45% |
| Oct 1987 | 7.31% | 9.52% |
| Jan 1988 | 6.62% | 8.67% |
| Apr 1988 | 6.75% | 8.72% |
| Jul 1988 | 7.69% | 9.06% |
| Oct 1988 | 8.12% | 8.80% |
| Jan 1989 | 9.00% | 9.09% |
| Apr 1989 | 9.75% | 9.18% |
| Jul 1989 | 9.06% | 8.02% |
| Oct 1989 | 8.75% | 8.01% |
| Jan 1990 | 8.25% | 8.21% |
| Apr 1990 | 8.25% | 8.79% |
| Jul 1990 | 8.00% | 8.47% |
| Oct 1990 | 7.75% | 8.72% |
| Jan 1991 | 6.75% | 8.09% |
| Apr 1991 | 5.75% | 8.04% |
| Jul 1991 | 5.75% | 8.27% |
| Oct 1991 | 5.00% | 7.53% |
| Jan 1992 | 4.00% | 7.03% |
| Apr 1992 | 3.75% | 7.48% |
| Jul 1992 | 3.25% | 6.84% |
| Oct 1992 | 3.00% | 6.59% |
| Jan 1993 | 3.00% | 6.60% |
| Apr 1993 | 3.00% | 5.97% |
| Jul 1993 | 3.00% | 5.81% |
| Oct 1993 | 3.00% | 5.33% |
| Jan 1994 | 3.00% | 5.75% |
| Apr 1994 | 3.75% | 6.97% |
| Jul 1994 | 4.25% | 7.30% |
| Oct 1994 | 4.75% | 7.74% |
| Jan 1995 | 5.50% | 7.78% |
| Apr 1995 | 6.00% | 7.06% |
| Jul 1995 | 5.75% | 6.28% |
| Oct 1995 | 5.75% | 6.04% |
| Jan 1996 | 5.25% | 5.65% |
| Apr 1996 | 5.25% | 6.51% |
| Jul 1996 | 5.25% | 6.87% |
| Oct 1996 | 5.25% | 6.53% |
| Jan 1997 | 5.25% | 6.58% |
| Apr 1997 | 5.50% | 6.89% |
| Jul 1997 | 5.50% | 6.22% |
| Oct 1997 | 5.50% | 6.03% |
| Jan 1998 | 5.50% | 5.54% |
| Apr 1998 | 5.50% | 5.64% |
| Jul 1998 | 5.50% | 5.46% |
| Oct 1998 | 5.00% | 4.53% |
| Jan 1999 | 4.75% | 4.72% |
| Apr 1999 | 4.75% | 5.18% |
| Jul 1999 | 5.00% | 5.79% |
| Oct 1999 | 5.25% | 6.11% |
| Jan 2000 | 5.50% | 6.66% |
| Apr 2000 | 6.00% | 5.99% |
| Jul 2000 | 6.50% | 6.05% |
| Oct 2000 | 6.50% | 5.74% |
| Jan 2001 | 5.50% | 5.16% |
| Apr 2001 | 4.50% | 5.14% |
| Jul 2001 | 3.75% | 5.24% |
| Oct 2001 | 2.50% | 4.57% |
| Jan 2002 | 1.75% | 5.04% |
| Apr 2002 | 1.75% | 5.21% |
| Jul 2002 | 1.75% | 4.65% |
| Oct 2002 | 1.75% | 3.94% |
| Jan 2003 | 1.25% | 4.05% |
| Apr 2003 | 1.25% | 3.96% |
| Jul 2003 | 1.00% | 3.98% |
| Oct 2003 | 1.00% | 4.29% |
| Jan 2004 | 1.00% | 4.15% |
| Apr 2004 | 1.00% | 4.35% |
| Jul 2004 | 1.25% | 4.50% |
| Oct 2004 | 1.75% | 4.10% |
| Jan 2005 | 2.25% | 4.22% |
| Apr 2005 | 2.75% | 4.34% |
| Jul 2005 | 3.25% | 4.18% |
| Oct 2005 | 3.75% | 4.46% |
| Jan 2006 | 4.50% | 4.42% |
| Apr 2006 | 4.75% | 4.99% |
| Jul 2006 | 5.25% | 5.09% |
| Oct 2006 | 5.25% | 4.73% |
| Jan 2007 | 5.25% | 4.76% |
| Apr 2007 | 5.25% | 4.69% |
| Jul 2007 | 5.25% | 5.00% |
| Oct 2007 | 4.50% | 4.53% |
| Jan 2008 | 3.00% | 3.74% |
| Apr 2008 | 2.00% | 3.68% |
| Jul 2008 | 2.00% | 4.01% |
| Oct 2008 | 1.00% | 3.81% |
| Jan 2009 | 0.12% | 2.52% |
| Apr 2009 | 0.12% | 2.93% |
| Jul 2009 | 0.12% | 3.56% |
| Oct 2009 | 0.12% | 3.39% |
| Jan 2010 | 0.12% | 3.73% |
| Apr 2010 | 0.12% | 3.85% |
| Jul 2010 | 0.12% | 3.01% |
| Oct 2010 | 0.12% | 2.54% |
| Jan 2011 | 0.12% | 3.39% |
| Apr 2011 | 0.12% | 3.46% |
| Jul 2011 | 0.12% | 3.00% |
| Oct 2011 | 0.12% | 2.15% |
| Jan 2012 | 0.12% | 1.97% |
| Apr 2012 | 0.12% | 2.05% |
| Jul 2012 | 0.12% | 1.53% |
| Oct 2012 | 0.12% | 1.75% |
| Jan 2013 | 0.12% | 1.91% |
| Apr 2013 | 0.12% | 1.76% |
| Jul 2013 | 0.12% | 2.58% |
| Oct 2013 | 0.12% | 2.62% |
| Jan 2014 | 0.12% | 2.86% |
| Apr 2014 | 0.12% | 2.71% |
| Jul 2014 | 0.12% | 2.54% |
| Oct 2014 | 0.12% | 2.30% |
| Jan 2015 | 0.12% | 1.88% |
| Apr 2015 | 0.12% | 1.94% |
| Jul 2015 | 0.12% | 2.32% |
| Oct 2015 | 0.12% | 2.07% |
| Jan 2016 | 0.38% | 2.09% |
| Apr 2016 | 0.38% | 1.81% |
| Jul 2016 | 0.38% | 1.50% |
| Oct 2016 | 0.38% | 1.76% |
| Jan 2017 | 0.62% | 2.43% |
| Apr 2017 | 0.88% | 2.30% |
| Jul 2017 | 1.12% | 2.32% |
| Oct 2017 | 1.12% | 2.36% |
| Jan 2018 | 1.38% | 2.58% |
| Apr 2018 | 1.62% | 2.87% |
| Jul 2018 | 1.88% | 2.89% |
| Oct 2018 | 2.12% | 3.15% |
| Jan 2019 | 2.38% | 2.71% |
| Apr 2019 | 2.38% | 2.53% |
| Jul 2019 | 2.38% | 1.63% |
| Oct 2019 | 1.62% | 1.71% |
| Jan 2020 | 1.62% | 1.76% |
| Apr 2020 | 0.12% | 0.66% |
| Jul 2020 | 0.12% | 0.62% |
| Oct 2020 | 0.12% | 0.79% |
| Jan 2021 | 0.12% | 1.08% |
| Apr 2021 | 0.12% | 1.64% |
| Jul 2021 | 0.12% | 1.32% |
| Oct 2021 | 0.12% | 1.58% |
| Jan 2022 | 0.12% | 1.76% |
| Apr 2022 | 0.38% | 2.75% |
| Jul 2022 | 2.38% | 2.90% |
| Oct 2022 | 3.12% | 3.98% |
| Jan 2023 | 4.38% | 3.53% |
| Apr 2023 | 4.88% | 3.46% |
| Jul 2023 | 5.38% | 3.90% |
| Oct 2023 | 5.38% | 4.80% |
| Jan 2024 | 5.38% | 4.06% |
| Apr 2024 | 5.38% | 4.54% |
| Jul 2024 | 5.38% | 4.25% |
| Oct 2024 | 4.88% | 4.10% |
| Jan 2025 | 4.38% | 4.63% |
| Apr 2025 | 4.38% | 4.28% |
| Jul 2025 | 4.38% | 4.39% |
| Oct 2025 | 3.88% | 4.06% |
| Jan 2026 | 3.62% | 4.21% |
| Apr 2026 | 3.62% | 4.32% |
| Jul 2026 | 3.62% | 4.60% |
| Aug 2026 | 3.62% |
How the Fed decides
The Federal Open Market Committee meets eight times a year to set the policy rate (Federal Reserve, FOMC calendar). Congress gave the Fed two goals, maximum employment and stable prices (Federal Reserve, monetary policy goals), and at each meeting the committee weighs the latest data on jobs and inflation against them. A pause means the committee judged its current setting about right for the moment. It is a reading of the present, not a forecast of what comes next.
What the Fed controls, and what it does not
The Fed sets a short-term rate: the rate banks charge each other overnight. Money market funds, savings accounts and short Treasury bills follow it closely. Longer rates, like the 10-year Treasury yield that anchors mortgages and bond prices, are set by investors in the market (New York Fed, EFFR).
The two often part ways. Since July 2023 the Fed has lowered its target by 1.75 percentage points, from a midpoint of 5.375% to 3.625%, while the 10-year Treasury yield rose from an average of 3.90% in July 2023 to 4.96% in September 2026 (U.S. Treasury yields; BIS policy rates). Cutting short rates did not bring long rates down with them.
The range of outcomes is wide. The policy rate reached 22% at the end of 1980, when the Fed was fighting double-digit inflation, and sat near zero for years after 2008 and again in 2020 (BIS policy rates).
What past pauses tell us
Since 1986 the Fed has held its rate steady for six months or more after a hike six times. Here is what happened next (our calculation from BIS policy rates, Shiller data and Treasury yields).
| Hold | Rate held | What the Fed did next | 10-year yield at start | 10-year yield a year later |
|---|---|---|---|---|
| Mar 1997 to Aug 1998 (18 months) | 5.50% | Cut | 6.69% | 5.65% |
| May 2000 to Dec 2000 (8 months) | 6.50% | Cut | 6.44% | 5.39% |
| Jun 2006 to Aug 2007 (15 months) | 5.25% | Cut | 5.11% | 5.10% |
| Dec 2015 to Nov 2016 (12 months) | 0.38% | Raised | 2.24% | 2.49% |
| Dec 2018 to Jul 2019 (8 months) | 2.38% | Cut | 2.83% | 1.86% |
| Jul 2023 to Aug 2024 (14 months) | 5.38% | Cut | 3.90% | 4.25% |
Two patterns stand out. Five of the six holds ended with a cut, so savers who counted on short-term rates staying high usually saw them fall. But the 10-year yield a year later was lower in only three of the six cases; it was about the same once and higher twice. Waiting for long rates to come down before locking them in has not been a reliable strategy. Six episodes are a small sample, and the next pause may not follow any of them.
Cash needs a job description
Cash is at its best when it has a defined purpose:
- An emergency reserve sized to the household, not to the headlines.
- Near-term spending, such as the next one to two years of withdrawals for a retiree, so that a market decline never forces a sale.
- Known large expenses, like a home purchase, a tax payment or tuition.
Beyond those jobs, cash carries reinvestment risk: when the Fed cuts, money market and savings yields follow within weeks. Bank deposits are FDIC-insured up to $250,000 per depositor, per bank, per ownership category; money market mutual funds are not deposits and are not FDIC-insured (FDIC).
Bonds are a decision about time
A bond locks in a yield for its term. Held to maturity, a Treasury pays its stated interest and returns its principal, whatever happens to rates in between (U.S. Treasury). That makes the useful question less about where rates are heading and more about when the money is needed. Money needed in year three can sit in a bond maturing in year three. A ladder of bonds maturing year by year turns a spending plan into a schedule of known payments.
A simple example: a household planning to withdraw $60,000 a year for the next five years could hold five Treasury bonds or CDs of about $60,000 each, one maturing each year. Every year's spending is known in advance, and a change in rates affects only the money reinvested as each rung matures.
Locking in has a cost as well as a benefit. If rates rise after purchase, the bond's market value falls, which matters only if it must be sold before maturity. That is why we match bond maturities to spending rather than to forecasts.
What rates mean for borrowers
The same split shows up on the other side of the balance sheet. Credit card, home-equity line and other variable-rate debts follow the Fed's short rate closely, so they get cheaper when the Fed cuts. Fixed-rate mortgages price off longer Treasury yields, so they can stay high while the Fed is cutting, as the chart shows for 2024 to 2026. A household deciding whether to pay down a mortgage or refinance should watch the long rate, not the Fed's announcement.
How we decide how much to lock in
- Start with the spending map. Known withdrawals and large expenses set how much should be in cash and short bonds.
- Ladder the next several years. Maturities that line up with withdrawals remove the need to guess the next rate move.
- Keep the long-term money invested for growth. Rates matter less to money that will not be spent for a decade or more.
- Mind the tax location. In high brackets, where a bond is held can matter as much as which bond it is.
How this may apply to your plan
If you are holding more cash than your plan needs while you wait for the next Fed decision, the history above suggests the wait itself is a decision, and not always a winning one. We can map your cash to the jobs it needs to do and build a ladder for the next several years of spending, so the plan does not depend on guessing what the Fed does next.
Sources and further reading
- Federal Reserve Board, FOMC meeting calendars and statements
- Federal Reserve Board, the economic goals of monetary policy
- Bank for International Settlements, central bank policy rates (United States)
- Federal Reserve Bank of New York, effective federal funds rate
- U.S. Department of the Treasury, daily Treasury par yield curve rates
- Robert J. Shiller, Yale University, U.S. stock market, dividend, CPI and interest-rate data since 1871
- FDIC, deposit insurance: what is and is not covered
- Bank for International Settlements, central bank policy rates, United States
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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.
General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.