Defined terms for the annuity market and lifetime income landscape.
Nominal interest rate is the interest rate stated on a financial instrument or contract without adjustment for expected inflation, expressed in dollar terms rather than purchasing power.
The Personal Consumption Expenditures index is the Bureau of Economic Analysis' measure of price change for goods and services consumed by US households; it is preferred by the Federal Reserve for policy and differs from the Consumer Price Index in basket composition and chain-weighting.
Purchasing power risk is the risk that a fixed nominal income stream buys progressively fewer goods and services over time as general price levels rise, eroding the participant's ability to fund their real cost of living.
Quantitative easing is a monetary policy in which a central bank purchases large quantities of long-maturity government bonds and other securities to push down longer-term interest rates after short-term rates have already been cut to near zero.
Quantitative tightening is a monetary policy in which a central bank reduces the size of its balance sheet by allowing bond holdings to mature without reinvestment or by selling bonds outright, reversing the bond purchases conducted during quantitative easing.
