You Are the Chief Economist of Free Formosan Investment and Are

Short Answer

You are the Chief Economist of Free Formosan Investment and are conducting research on inflation forecasting by using the information of the Treasury Inflation-Protected Securities (TIPS). The information that you have are as the following: Nominal yield on 10-year nonindexed Treasury bond is 4.5%; Real yield on 10-year TIPS is 2.25%; The market adjustment for inflation and liquidity risk is 45 basis-points. What is the expected annual inflation rate over the next decade?