For a long time, cash felt like wasted space. It did not pay. It did not help. If you wanted return, you had to take risk.

That tradeoff is changing.

The Fed’s target range for the federal funds rate is 3.5 percent to 3.75 percent. Short Treasury bills sit close to that level. On January 20, 2026, the 3 month Treasury bill rate was 3.59 percent on FRED. Inflation has also cooled. The CPI rose 2.7 percent over the 12 months ending December 2025.

When safe yield is near inflation, cash stops being a placeholder. It becomes a real option.

That shift matters because many market habits were shaped in the opposite world, when rates were near zero and cash was a drag.

In December 2008, during the financial crisis, the Fed set a target range of 0 to 0.25 percent. That was not a quick detour. It became a long stretch where the return on cash was tiny.

Then, in December 2015, the Fed raised the target range to 0.25 percent to 0.5 percent, ending that first near zero era.

But the zero habit came back. In March 2020, as the pandemic hit, the Fed again lowered the target range to 0 to 0.25 percent.

So for many investors, the “normal” setting was simple. Cash pays little. Borrowing is cheap. Risk is where return lives.

That belief did not need a slogan. It became the background music of the market.

Carry is a plain idea. You borrow at one rate and buy something that should earn more. If the spread stays wide enough, the trade feels easy.

In a world where U.S. cash yields were near zero, borrowing dollars to own risk assets was often treated as common sense. Even if people did not call it carry, the logic was the same.

Cheap dollars could fund many choices

When cash pays almost nothing, the hurdle is low. Risk does not need to be great. It just needs to be better than zero.

That is the dollar carry habit. It is not one trade. It is a mindset built on a simple base rate.

Now the base rate is higher and more stable. The Fed is at 3.5 percent to 3.75 percent. Bills are around 3.6 percent. Inflation is 2.7 percent over the past year.

That changes the math in quiet ways.

First, risk has a stronger rival. If cash can hold its value in real terms, you do not need a big story to justify holding it.

Second, leverage stops feeling free. A higher funding cost raises the break even point for many trades. Some positions still make sense. But fewer of them feel automatic.

Third, patience becomes easier. In the near zero years, waiting had a clear cost. Today, waiting can pay.

This is how unwinds can happen without a headline crisis. The system does not need a shock. It only needs a new baseline.

When a habit fades, it rarely ends in one day. It can show up as small changes that add up.

None of this requires panic. It is more like gravity. If the risk free option improves, some risk must reprice, even if nothing breaks.

This also explains why markets can feel jumpy in a higher rate world. When the carry cushion is thinner, small price moves matter more. The room for error shrinks.

If cash stays real and competitive, a few broad paths are possible.

One path is slower and more selective risk taking. Assets can still rise, but the market may demand clearer proof, not just hope.

Another path is a continued drift away from leverage. Not a crash, but a steady pullback as trades that worked at near zero stop working at mid single digits.

A third path is more frequent shifts between risk on and risk off. When cash pays, investors can step back faster. That can amplify swings, even if the economy is fine.

These are not predictions. They are ways the same forces have tended to play out when the cost of money changes.

Markets have memory because people do. A long era of near zero rates taught investors that cash is useless and carry is normal.

Now rates are not near zero, and inflation is lower than it was.

That does not guarantee turmoil. But it does mean old assumptions are under pressure. When cash pays again, risk has to compete again. And when the base rate changes, the habits built on the old base rate do not unwind with a single headline.

They unwind because the math changed.