Société de recherche indépendante en macro-économie et stratégie d’investissement

The importance of real long-term interest rates for the economy and markets is well known. We will start by pointing out an essential practical point when estimating real long-term rates. To do so, some observers still deflate present or past nominal inflation rates. This is not accurate because unless we accept the concept of adaptive expectations, the real rate stems from inflation expectations. If we expect inflation to rise, lenders will demand that borrowers pay a higher nominal interest rate.