Skip the fiscal-cliff concern, watch for inflation, adviser says

Concern that inflation will “runaway” at 4% to 5% over the next year and then Fed will have to step in to control prices

The pending fiscal cliff and possible tax increases are worth watching, but one financial adviser says wealthy Americans should really be focusing on the economy’s improvement and possible inflation.
New York-based financial adviser Bill Losey said he thinks interest rates are going to be headed up earlier than the Federal Reserve has suggested. He said he believes that Americans have returned to consuming and he doesn’t see evidence of a continuing recession.
He is worried that inflation will “run away” at 4% to 5% over the next year or so and then the Fed will have to step in and raise interest rates to control prices.
“The economy and inflation might tick up more than people expect, and although the Federal Reserve has indicated it will keep rates low into at least early 2015, they can’t do it in a vacuum,” Mr. Losey said. “I think interest rates will go up much faster than what the Fed said.”
Mr. Losey estimated it may be as early as the end of next year when the Fed could be forced to take action.
Regarding the so-called Jan. 1 fiscal cliff, when a combination of tax increases and spending cuts are set to go into effect unless Congress acts, Mr. Losey said he believes that lawmakers will “kick the can down the road” another six to 12 months.
He thinks that congress will approve tax cut extensions on a temporary basis so that the officials who are elected in November will have time to “work things out in a firm and thoughtful manner.”
Of course, it’s not impossible that the full hit of spending cuts and tax advances will happen, he said.
“We could get a real big surprise,” Mr. Losey said.