Last October Federal Reserve Chairwoman Janet Yellen delivered a speech decrying income inequality. While we will not weigh in on this contentious issue, it seems to us that the Fed has done little to boost the fortunes of investors who rely on a fixed income to make ends meet.
While the Fed has always struggled to fulfill its dual mandate of simultaneously maximizing employment while pursuing price stability, its mission has grown even more daunting since the financial crisis of 2008-2009. The Fed’s balance sheet has expanded from $858 billion (August 2007) to over $4 trillion today, largely through buying “toxic” securities held by its member banks. The resulting expansion of cash reserves at member banks poses a looming threat to price stability. Yet the Fed remains reluctant to reduce those reserves lest rising interest rates negate its efforts to return to full employment.
In the face of these unprecedented challenges, Ms. Yellen would appear to have her hands full with matters other than income distribution. But her rhetoric is all the more peculiar considering the Fed’s low interest rate policy, which prevailed well before her speech and has remained in place since. These rates have imposed great hardship on investors whose savings are concentrated in short term cash equivalent assets such as bank accounts, CDs and short term bonds.
Also in This Issue:
2014 And Small Cap Stocks: A Bump In The Road
Cash Equivalent Assets: Market Risk Versus Inflation Risk
The Randomness of Returns
The High-Yield Down Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Recommended Investment Vehicles
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