(Bloomberg) With the bond market painting such a bleak picture of the U.S. economy, it might seem a little odd to bet on a pickup in inflation. Yet for Pimco, Vanguard and BlackRock, that is exactly where the money’s at.
While inflation has failed to consistently reach the Federal Reserve’s 2 percent target for years and the die-hards have been stymied by false starts time and again, the fund giants say the central bank’s dovish pivot is a game-changer. A tight labor market, and the Fed’s willingness to consider putting off raising interest rates this year and letting inflation run hot, are bound to raise expectations and push up consumer prices. That means getting into inflation-protected Treasuries, commonly known as TIPS.
“The Fed told us that they would like inflation and inflation expectations to go higher,” said Mihir Worah, CIO of asset allocation and real return at Pimco, which manages $1.7 trillion. “This is the one asset class that the Fed is directly trying to impact. So it makes sense to own them.’’
