Question

As of March 12, 2020 the yield to maturity on 30 year US Treasury Bonds was 1.44%. On the same date, the yield to maturity on 30 year TIPS (Treasury Inflation Protected Securities) was 0.31%. The latter can be viewed as a real interest rate. What forecast inflation rate is implied by these interest rates

Answer 1

The forecast inflation rate is implied by these interest rates is 1.13%

Step-by-step explanation:

when dealing with inflation, we have that:

(1 + nominal interest rate) = (1 + real interest rate) * (1 + inflation rate)

1.0144 = 1.0031 * ( 1 + inflation rate)

inflation rate = 1.0144/1.0031 - 1

= 1.13%

Therefore, The forecast inflation rate is implied by these interest rates is 1.13%