Expectations and Interest Rate Introduction: If someone buys a long-term bond, they must expect some changes in future interest rates. They speculate as a matter of course. Although other considerations may influence their decisions, those who are converting their cash into bonds tend to think that the interest rate will fall and the bond price will rise. Those who monetize their bonds have conflicting expectations. If the current interest rate is low, they expect the current bond price to be high. To be clear, those who believe that the current interest rate is neither high nor low, they use the normal interest rate to compare the current interest rate. This normal rate also always changes. This rate changes due to inflation. Inflation and other factors cause wealthy people to adjust their perceptions of the normal interest rate, but they may decide that the current interest rate at a time is neither higher or lower than the normal rate can decide. The amount of illusory money ba...
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