The fiscal cliff is a major concern of investors but other advisors are guiding their clients to focus on the improvement in the economy and the possibility that inflation could be the next concern.
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Interest rates may rise sooner than anticipated despite the Fed’s announced target of keeping interest rates near zero at least until mid-2015.
As soon as the end of 2013, the Fed may be forced to raise rates, especially if the latest quantitative easing (QE3) works to improve the employment picture more quickly than anticipated.
Congress also may approve extensions of current tax laws while allowing others to expire, lessening the brunt of the fiscal cliff scenario.
The fear is that, as the economy continues to improve, the radically accommodative policies of the Federal Reserve will create an inflation rate of 4% to 5% and may allow inflation to grow
too long in the interest of ensuring the stability of the recovery before taking action to effectively