What is the expected rate of inflation for the average investor?



What is the expected rate of inflation for the average investor?

This would be true if investors were expecting an average inflation rate over the next 5 years equal to 1.35% – (–1.65%) = 3%. To put things another way, for an investor to break even on a bet between a nominal and inflation-protected security, the expected rate of inflation would have to be 3%.

How do you measure inflation expectations?

One measure of long-run inflation expectations is the breakeven inflation rates computed from Treasury inflation-protected securities (TIPS). 3 TIPS are bonds issued by the Treasury that, in addition to the standard coupon, also pay an inflation compensation rate equal to the year-over-year CPI inflation rate.

What is the breakeven inflation rate?

The breakeven inflation rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities (BC_5YEAR) and 5-Year Treasury Inflation-Indexed Constant Maturity Securities (TC_5YEAR). The latest value implies what market participants expect inflation to be in the next 5 years, on average.

Where does Fred get its treasury bond data from?

where BC10_YEAR, TC_10YEAR, BC_5YEAR, and TC_5YEAR are the 10 year and 5 year nominal and inflation adjusted Treasury securities. All of those are the actual series IDs in FRED. Starting with the update on June 21, 2019, the Treasury bond data used in calculating interest rate spreads is obtained directly from the U.S. Treasury Department.