Fed Policy Could Hurt Income Investors

Well, it happened: Ben Bernanke announced recently that the Fed was finally kicking off QE3, sparking a monthly buying spree of $40 billion in mortgage-backed securities that's expected to go on until further notice. That open-ended timeline means that Ben's going to be racking up a huge bill. If you're an income investor though, you should be sweating. After all, this latest round of quantitative easing is going to fuel inflation until the tap gets turned off, and it's taking place at the same time that Bernanke has promised extraordinarily low interest rates to remain par for the course.

Low interest rates and high inflation means that this is going to continue to be a toxic environment for folks who own income-generating assets. Let me be clear: Inflation doesn't even need to be high for the current scenario to smash your income payouts. With the Fed pegging short-term rates near zero, it doesn't take much inflation at all to gut income investors' real returns. So fixed-income investors need to focus on a different sort of cash-generation tool in 2012: dividends.

Source: The Street

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