The federal reserve is printing money as if it were going out of style. Could this behavior lessen the value of a dollar? How great is the risk to your retirement-and what are you going to do about it? Let's start with the base case for the Consumer Price Index: a 2% annual growth rate over the next two decades. I call this a base case because it is baked into the pricing of Treasury bonds. This doesn't mean 2% inflation is foreordained. It just means that investors are behaving as if 2% were the right number for expected inflation. (In a crap-shoot like this one the "expectation" is the average of all possible outcomes, weighted by their probabilities.) Here's where that 2% comes from. The yield to maturity on Treasurys due in 2034 and paying a plain old fixed coupon comes to 3%. The yield to maturity on inflation-protected Treasurys due in 2034 is 0.6%. The latter products, called TIPS, give you 0.6% plus whatever inflation rate we get.
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