Inflation has The Federal Reserve Board running scared and we will all pay the price for it. High energy prices, rising unit labor costs and pressure on supplies of key resources such as steel and cement thanks to Hurricanes Katrina and Rita are lining up like some ill-fated stars to guarantee the Fed will continue raising short-term interest rates.

More importantly, inflation robs investors and everyone else by raising prices with no corresponding increase in value.

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You pay more for less. By making money more expensive to borrow, the Fed effectively removes some of the excess capital from the market.

What Is the Effect of Economic Deflation on Stocks & Bonds? | Finance - Zacks

Too much money chasing too few goods is effects of deflation on the stock market classic definition of inflation. Taking money out of the market slows the cycle of price increases.

There are two more meetings of the Open Market Committee the effects of deflation on the stock market that sets rates in Given the pressures mentioned earlier, you can a dynamic program such as a clock a stock market it to the bank that the Fed will keep raising rates at least through the end of the year.

Inflation erodes your purchasing power and retirees on fixed incomes suffer when their nest egg buys less each passing year.

How inflation and deflation affect investments, investing and money

This is why financial advisers caution even retirees to keep some percentage of their assets in the stock market as a hedge against inflation. The more cash or cash equivalents you hold, the worse inflation will punish you.

Look for inflation-indexed products like the Treasury I Bonds and other products that offer a hedge against rising rates. Search the site GO.

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The Effect of Deflation on the Stock Market | Finance - Zacks

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