Bloomberg Surveillance · Thursday, October 1, 2026
Campbell Harvey asserts that the increase in interest rates is primarily driven by higher expected real economic growth, not by increased inflation expectations. He points to the TIPS market, where breakeven inflation rates have remained stable around 2.36% over the past year, indicating that the market does not expect inflation to exceed the Fed's 2% target significantly.
“So the best way to think about expected inflation is to look at the TIPS market. So you look at the difference between a nominal 10-year yield and the real yield, you get expected inflation or breakeven inflation. So that breakeven rate today is about 2.36%.”
“So that means that people don't believe the 2% target. And this is really important, that the increase in rates that we're experiencing is not due to expected inflation. I know it's kind of non-intuitive to people paying over $6 for diesel. But the expected inflation, the break-even inflation, has not moved over the past year.”
“So the key thing that's moved in the economy, whether it is a corporate bond or the government bond, is the expected real interest rate. And this goes all the way back to my dissertation at the University of Chicago that shows there is a positive relation between expected real growth. And the expected Brill rate. The reason that rates are going up is because of higher expected real economic growth. It's that simple.”