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Real Interest Rate
Macro & the Fed
The real interest rate is the nominal rate minus inflation, the return measured in actual purchasing power.
It is roughly the nominal rate minus expected inflation. In the US, the market's measure of real rates is the yield on inflation-protected Treasuries (TIPS). Rising real rates weigh especially on the valuations of growth companies that expect most of their profits far in the future.
Example
If a bond yields 5% and inflation is 3%, the real yield is about 2%. With 6% inflation, the same bond would lose about 1% in real terms.
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