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2025 Asset Allocation Return & Risk Assumptions
By Wilshire
Wilshire’s long-term inflation forecast is 2.35%, which is up 10 basis points from last year’s assumption. Our practice since 2003 has been to derive our inflation forecast by observing the market’s breakeven inflation rate – the spread between the yield on a 10-year Treasury and the real yield on a similar maturity Treasury Inflation Protected Security (TIPS). During periods of market stress, TIPS pricing may be affected by liquidity demands or a high level of inflation uncertainty, as was the case in 2008 when our inflation forecast was higher than actual breakeven. In 2020, an elevated level of volatility in the signal again resulted in our quarterly inflation assumption being different from 10-year breakeven. While Wilshire believes that the market’s implied estimate of future inflation serves as a reasonable forecasting signal, there are times when several years of experience with these indicators, combined with a review of relevant macroeconomic data, will push our forecast away from the exact breakeven spread. The exact breakeven signal for year-end 2024 was 2.34%, which is roughly equal to our inflation.
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