The world's largest hedge fund: central banks use taboos in the face of supply-driven inflation
Source: Wall Street
Qiaoshui warned that with energy prices soaring, Qualcomm IncInflation will continue; while the central bank's move to raise interest rates may have a limited impact on tackling inflation, "raising interest rates will not increase oil supply."
Central banks will have to cope with high inflation as energy prices soar and high inflation will persist, which will deal a blow to the global economy, Bridgewater, the world's largest hedge fund, has warned.
In an interview with the Financial Times, Bob Prince, co-chief investment officer of Qiaoshui, said the Fed's argument that "inflation is only a temporary phenomenon" is being challenged. As the global economy recovers from the epidemic blockade and the demand for resources is strong, price pressures will be difficult to resolve:
Since this round of inflation is supply-driven, the Fed's current tightening policy will not do much to reduce inflation.
If the Fed does too much (to deal with inflation), financial markets are bound to be affected, which may not be what they want to see.
With the lesser of the two evils, the Fed may choose to allow inflation to continue to rise.
Prince's view reflects recent market concerns about inflation. As energy prices continue to rise, represented by natural gas, concerns about broader price increases are intensifying, triggering a sustained rise in inflation-sensitive bond yields.
In Europe, where natural gas has soared, Germany's 10-year break-even inflation rate, a measure of investors' inflation expectations over the next decade, rose to 1.68 per cent, the highest level since 2013, while the UK's 10-year break-even inflation rate climbed to its highest level since 2008. By contrast, the yield on 10-year UK government bonds broke through 1.14 per cent on Friday, the highest level since May 2019.
The Bank of England has said it could raise interest rates as early as this year to curb inflation.
Prince says the situation is somewhat similar to the oil crisis of the 1970s, when international oil prices rose rapidly as a result of OPEC production cuts, driving up inflation while dragging down the global economy.
The central bank's move to raise interest rates may have a limited impact on tackling inflation. "raising interest rates will not increase oil supply."
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