Inflation is driving the headlines and wreaking havoc on budgets. But for long-term investors – mostly everyone – short-term inflation isn’t the biggest risk to financial plans. Volatility is. It’s being fueled by the Federal Reserve’s efforts to balance bringing down inflation with keeping the economy out of recession.
The Fed is raising the key short-term interest rate to slow economic growth. This makes money more expensive, which you know first-hand if you have a credit card account or you’ve tried to buy a home or refinance an existing mortgage.
The reason this is generating volatility is that markets hate uncertainty. Markets are forward-looking and attempt to price into stocks and bonds today, things that will likely happen in the future. The issue is that the Federal Reserve can’t tell the markets in advance exactly how much and when they will raise interest rates because it’s a delicate task depending on a... ...
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