Bridgewater Associates Greg Jensen projects a new inflationary wave that could force the Fed to act earlier than planned, according to Bloomberg. Jensen expects Biden’s administration’s “extreme” approach to fiscal stimulus to turbocharge consumer prices faster than the markets or the Fed are expecting.
Jensen projects that any likely rise in consumer prices will threaten the post-crisis bond and stock rally.
While market-derived inflation expectations have surged near a 12-year high, the Fed has signaled patience with a heating economy and projects no rate hike for the coming two years.
Jensen points out that “the pricing-in of inflation in markets is actually the beginning of a major secular change, not an overreaction to what’s going on.”
Bridgewater has long raised the alarm over holding bonds amid rising inflation risk, sentiments also shared by Ray Dalio co-chief investment officer Bob Prince.
Jensen says labor-friendly policies and slowing globalization are the only disinflationary force around.
Bridgewater aims to capitalize on the macro turnaround, using alternative data to map the rollout of the fiscal stimulus, which is by nature harder to track than monetary tools.
Eurodollar contracts suggest a roughly 75% chance of tighter policy by December 2022.
