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Inflation Premium

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Inflation Premium
The higher return that investors demand in exchange for investing in a long-term security where inflation has a greater potential to reduce the real return. The inflation premium is the reason that most yield curves trend upward. Thus, a bond with a maturity of 30 years almost always has a higher coupon rate than one with a maturity of 30 days. Investors expect to make a larger nominal return in part to compensate them for the lower real return that is almost inevitable because of the nature of inflation. See also: inflation risk.

inflation premium
The portion of an investment's return that compensates for expected increases in the general price level of goods and services. The expectation of rising inflation results in higher long-term interest rates as lenders and borrowers build in an increased inflation premium.


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Inflation Premium Federal Reserve manipulation of interest rates cause boom and bust cycles because it gives investors and entrepreneurs false signals?
What has mostly flowed is the supply of dollars, and so some part of oil's increase should be called the Alan Greenspan-Ben Bernanke inflation premium.
The Fed has spent most of the last 25 years eliminating the expected inflation premium from interest rates.
 
 
 
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