Fed to Let Inflation Run… Can Your Budget Take It?

The Federal Reserve announced a new policy on Thursday, it will let inflation run in the interest of promoting maximum employment. 

That might sound boring, especially with official inflation tame for the last decade, but the policy could come back to bite the Fed, and consumers, especially seniors, in the years ahead.

The plan calls for the Fed to target an average inflation rate of 2%, which means that if the economy heats up after running at a low rate with high unemployment and low inflation, the Fed will let it grow with inflation running beyond 2% for some period of time as long as employment is also expanding.

The central bank will be slow to raise rates or end its bond buying program.

The outcome could be rising prices for consumers as they earn paltry amounts in their savings accounts.  The net result is paying more to live while not earning more on your savings.

No one is particularly worried about inflation today, in fact, the Fed would welcome inflation because in theory it motivates people to spend more, which could help the economy. But that ignores a growing segment of the population.

Seniors tend to live on fixed income, so inflation is especially painful for those over 65.

If the Fed pursues the goal as stated, then a growing number of retired Boomers could find themselves spending more on food, energy, and other expenses while their savings accounts remain essentially flat.  The only saving grace would be that Social Security benefits are tied to inflation, however, the government has been trying to change this from inflation based on prices, or CPI, to inflation based on rising wages.  If that happens, then Social Security benefits would rise more slowly than prices, which would put seniors even further behind.

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  1. Mandew

    The Federal Reserve needs to go the way of the dodo bird!

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