What interest rate is generally used as an estimate of future inflation?
I think you may have the cart before the horse. Inflation is one factor that drives interest rates, not the other way round. Yes, lenders and the Fed will use estimates of inflation in the near future to make decisions on what interest rates to use. If future inflation is expected to be higher, interest rates will generally rise. However, interest rates are also determined by factors other than inflation. So, you cannot pick an interest rate and say, “this is the expected inflation rate over the next ____ years.” Unfortunately, there is no good way to estimate future inflation. You can track current inflation and you can see what has happened in the past. From 1926 to 2000, inflation was annualized at about 3.1%. However, from 1950 to 2000, inflation annualized at 4%. And, during the 1970s, inflation was annualized at about 7%. The Fed will use its monetary policy to try to maintain inflation within the 2 – 3% range, but there is no guarantee they can accomplish this. For retirement pl
