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6 ways the Federal Reserve and its low interest rates are hurting retirees

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No. 6: Stoking future inflation
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No. 6: Stoking future inflation © Brian McEntire/Shutterstock.com

No. 6: Stoking future inflation

The Fed's policy of keeping rates low is intended to make borrowing less costly and, thus, stimulate the economy. But all that "cheap money" may come with a high price if it ignites inflation somewhere down the road.

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

Inflation has been weak, but the Fed is closely watching for any hints of rising prices. Raising the federal funds target rate is the best way to tamp down incipient inflation.

"I suspect that the Fed's policies will change at the first sign of inflation," Kubik says.

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 percent before it got inflation under control.

Moore says investors who fear future price increases should 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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