Vote with your feet! Three top investment giants begin to guard against "inflation risk"

While most global investors are immersed in the illusion that inflation has cooled, Wall Street's "smart money" is quietly building defenses against the impact of a new round of price surges.

According to a Bloomberg report on February 2, BlackRock, Bridgewater, and Pimco are actively adjusting their portfolios to respond to potential price pressures that may exceed expectations. This concern sharply contrasts with the mainstream market view, which generally expects inflation to steadily return to central banks' targets.

UBS senior trader Ben Pearson bluntly stated that the "inflation-driven boom" led by the United States is the biggest risk that investors are underpricing this year. He warned that if this scenario materializes, the Federal Reserve will be completely "on the sidelines" in the first half of the year, forcing the market to start repricing interest rate hikes in the second half.

Different Strategies from Wall Street Giants

Despite the market's general belief that inflation is under control, the 10-year inflation swaps surged by 11 basis points in January, with the breakeven inflation rate hitting a multi-month high. In the face of the specter of inflation, major asset management giants have adopted different hedging strategies:

• BlackRock: Tom Becker, manager of the Tactical Opportunities fund, stated that they have been increasing short positions in U.S. and U.K. bonds since the end of last year to guard against the possibility of interest rate cut expectations falling short.

• Pimco: They are optimistic about the buffering effect of Treasury Inflation-Protected Securities (TIPS). Senior fund manager Michael Cudzil pointed out that although inflation remains above target and there is a risk of rebound, long-term inflation expectations are still relatively low, “TIPS provide cheap insurance.”

• Bridgewater: They prefer stocks over bonds. Bridgewater noted that even if AI can ultimately suppress inflation by increasing efficiency, the enormous demand for chips, electricity, and data in the short term has actually created a "challenging bond environment."

The Tough Test for the New Fed Chair

Market anxiety is also directed at Kevin Warsh, the newly nominated candidate for the next Fed chair. Investors are trying to weigh Warsh's long-standing reputation as an "inflation hawk" against whether he will cave to pressure to deliver the deep rate cuts sought by Trump.

Lazard CEO Peter Orszag provided a striking prediction. He believes that it is not only possible for U.S. inflation to rise above 4% by the end of the year, but it is also "the most likely scenario."

Standard Bank G-10 strategist Steven Barrow predicted that if the White House's willingness to cut rates is hindered by inflation, the yield on 10-year U.S. Treasuries could rebound from the current level of around 4.25% to 5%.

Disturbances in the Global Inflation Map

It's not just the U.S.; the global inflation landscape is becoming chaotic. In Australia, traders have begun betting that the Reserve Bank may raise rates on Tuesday as domestic prices rise again; meanwhile, the expectations for rate cuts in the U.K. have also been significantly reduced due to strong economic data Even in the Eurozone, where inflation has been moderately low for a long time, the market still believes that prices will return to the 2% target. However, as U.S. inflation indicators strengthen, long-term expectations in the Eurozone are also quietly rising.

As Bloomberg macro strategist Simon White stated, with inflation pressures accumulating in all directions, "Whether defending against rate cuts or facing pressure to raise rates, Waller will face an extremely difficult task. Inaction will no longer be a viable option."