Central bank determines official interest rates through monopoly power. Changes in official rates affect banks and money-market rates. Monetary policy influences expectations of future inflation. Central bank credibility anchors price stability expectations
Central banks initially ignored inflation expectations in Phillips curve analysis. Phelps and Friedman showed inflation expectations mattered during Great Inflation. Volcker's tenure focused on long-run inflation expectations
Inflation expectations are people's forecasts of future price increases. Higher expectations lead to higher actual inflation rates. Fed aims to anchor inflation expectations at 2% target
Yield measures ex-ante return to security holders. Coupon rate shows annual interest paid as percentage of principal. Current yield compares annual coupon to market price. Yield to maturity considers principal payment at maturity. Yield to call/put depends on bond's option features