Inflation

Over at SeekingAlpha, Bo Peng makes the case that inflation, even moderate inflation, is a danger to baby boomers now approaching retirement:

Starting from right now, however, as babyboomers go into retirement or start deligently (perhaps belatedly) saving for retirement, inflationary policy will cause much more pain than ever seen before. Even under "moderate inflation" scenario, it's still a significant erosion of buying power and living standard over 10, 20, 30 years. The effect will be quite painfully clear, and soon, for those living on fixed income.

I was discussing this with a colleague last week. I think the lower-income retirees are not the most vulnerable here. Their income is primarily Social Security benefits, which are indexed to inflation. The most vulnerable are those with savings to supplement their Social Security benefits.

The Federal Reserve faces a big dilemma late this year and next year: How long can the Fed wait to raise rates and to cut back this liquidity injection? The Fed remains quite concerned about inflation; however, it has a more immediate priority -- to keep the financial system from seizing up.