federal reserve

6 reasons retirees love it when the Federal Reserve raises interest rates

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Protection from future inflation
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No. 6: Stoking future inflation © Pincasso/Shutterstock.com

Protection from future inflation

The Fed's policy of keeping rates low has been meant to make borrowing less costly and, thus, stimulate the economy. But all that "cheap money" has come at the risk of potentially setting off inflation somewhere down the road.

A surge in prices would easily overwhelm the returns retirees get from CDs, savings and other fixed-income investments.

An increase by the Fed in its federal funds target rate is the best way to tamp down incipient inflation, says Kubik, the certified investment management analyst in Denver.

Once inflation starts, it can be difficult to stop. In the early 1980s, the Federal Reserve was forced to crank up rates to a high of 20% before it got inflation under control.

Moore has urged investors who fear future price increases to keep some of their bond portfolio in Treasury inflation-protected securities, or TIPS, which increase your principal in tandem with rising inflation.

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