Is U.S. inflation here to stay? Here’s what the marketplace sees for the next 10 years – By Peter Crabb (Northwest Nazarne University) / Oct 19 2021
Inflation is real. We are all facing higher prices for stuff we regularly buy.
However, there is a big, and not just academic, debate over just how high prices will rise. The question is whether the inflation we are currently experiencing will be temporary.
Activity in the financial markets can help us answer these questions. The bond market reflects investors’ outlook for inflation.
History and economic theory teaches that interest rates on bonds, certificates of deposits, or any other debt securities are made up of two parts. First, the interest rate compensates the lender for the possibility of inflation. If prices rise over the term of the contract, the lender loses purchasing power. Thus, the stated interest rate on the loan includes a return for the expected inflation over the period.
