Today in class we talked about how the lender builds in what they think inflation is going to be into the loan. But if the inflation is more than their estimate they kind of lose, so is there an incentive for lenders to build in a safety net by increasing what they expect inflation to be? If the interest rates are higher is there no incentive for a safety net since its built into the interest rate?
Regardless of what the real interest rate is, lenders will always have an incentive to find out what the inflationary premium should be so they are not losing out on purchasing power. Similarly, lenders also want to make sure they aren't overpricing the inflationary premium so that they can remain competitive in the loanable funds market.