A Market Measure of Long-Run Inflation Expectations
Brad DeLong explains here how the difference in interest rates between the Federal government’s 30-year nominal bonds and its 30-year real bonds (Treasury Inflation Protected Securities) can measure financial investors’ expectations about average inflation over the next 30 years.
Unlike Brad, I think the investor’s expectations are reasonable. Knowing the articles in economics journals that the folks at the Fed are reading–and that young economists whose future is at the Fed are reading–makings me confident that the commitment to controlling inflation in the long run is durable. 2% seems to have been settled on as the long-run target.