The Federal Reserve and Inflation - July 28, 2021

As strong earnings reports continue to pour in, investors are turning their attention to this week’s Federal Reserve meeting.

Investors have been focused on higher inflation and how the Fed might respond.

Up till now, the Fed has stuck to its guns, insisting that the burst in inflation is tied to the reopening of the economy and won’t impact its easy money policy.

Economists surveyed by CNBC believe the Fed will eventually cutback on its bond buys, with a possible announcement of a plan in November and an actual reduction beginning in January.

But they aren’t expecting a shift in policy at this week’s meeting.

Investor’s corner

Why do investors care about a reduction in monthly bond purchases by the Fed?

It’s very unlikely that the Fed will begin hiking interest rates until it has stopped purchasing Treasury bonds and mortgage-backed securities that total about $120 billion each month.

Ultimately, the path of the economy and the persistence of inflation will help dictate Federal Reserve policy on interest rates.

That said, rate-forecasting is dicey.

It’s one reason we advocate a comprehensive investment plan. Historically, it has been the best path to creating wealth and reaching one’s financial goals.