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Ahead of the Fed

August 21, 2014

Federal Reserve Chairwoman Janet Yellen is set to deliver a speech on Friday at the Jackson Hole forum for global central bankers. These central bankers will decide when they will raise the official interest rate. Yellen has been advocating to keep interest rates low and believes that the U.S. economy still needs support in the form of low interest rates. Her stance also seems to indicate that, if interest rates do rise, they will be raised at a very slow and lengthy pace. We all know interest rates have to rise; it is simply a matter of when. A drastic change in rates would shock the U.S. economy and its recovery, which explains Yellen's resistance towards raising the official interest rate. We can't have our cake and eat it, too; as interest rates continue to be kept artificially low, rising inflation is the unfortunate side effect. If interest rates rise to combat inflation, the economy may need another "stimulus," which would only increase our national debt and raise inflation, anyway. Keep interest rates artificially low, and investors must take more risks in order to combat the wealth deteriorating effects of inflation. As assets continue to become more overpriced and overvalued, Fed policy seems to put investors in a catch-22.

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