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inflation premium |
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| in which a person gets all his money back at the end of the bond's life along with an inflation premium. The Fed is expected to accommodate a positive monetary surprise, at least in part, by increasing money supply growth thus raising the inflation premium in nominal interest rates. Those higher long-term rates reflect both a greater inflation premium and an expectation of higher real short-term rates in the future as government spending increasingly crowds out private spending. |
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