Real Interest Rates Turn Negative
Jim Hamilton sends us to a picture drawn by the St. Louis Fed:
and comments:
Econbrowser: Commodity prices and the Fed: when you plot the implied real yield on the Treasury inflation indexed security maturing in 2010, you indeed get a graph of the real interest rate that has recently become quite negative. If there is no inflation over the next two years, you'd actually pay more in dollars to buy this security than you will receive back in coupons and principal. With inflation, you may make a nominal gain, but you're guaranteed to end up with less than you started in real terms...
