Gross said he owns 10-year and 15-year TIPS that reflect inflation expectations for 2020 and 2025, as well as New Zealand and Mexican linkers. He sees U.S. inflation at 2 percent this year and 2.5 percent for the three years after that.
While the Bank of England’s 2 percent inflation target was breached for the 38th consecutive month in January, Governor Mervyn King said Feb. 13 that central bank officials will keep encouraging growth. The latest minutes of its policy meeting, published Feb. 20, said further asset purchases “could help the process of rebalancing the economy.”
The BOE said in July that the 200 billion pounds ($305 billion) spent on bond purchases from March 2009 to January 2010 increased output by as much as 2 percent and inflation by 1.5 percentage point.
‘Kitchen Sink’
In Japan, the central bank raised its inflation target to 2 percent in January from 1 percent. New Prime Minister Shinzo Abe campaigned on promises of more monetary stimulus and weakening the yen, which has dropped 17 percent against the dollar since Oct. 1, its worst performance over a similar period since 1985.
“Central banks have made it even clearer they are not prepared to tolerate anything less than inflation,” Neil Williams, chief economist at Hermes Fund Managers, which oversees $42 billion of assets, said in an interview Feb. 14. “That means they will throw a kitchen sink at it in terms of liquidity injections.”
The value of global equities surged $6.5 trillion since mid-November, with the Standard & Poor’s 500 index reaching a five-year high. The Stoxx Europe 600 Index rose 12 percent since European Central Bank President Mario Draghi pledged July 26 to do “whatever it takes” to safeguard the monetary union.
Several policy makers said the Fed should be ready to vary the pace of monthly bond purchases, according to the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting. They review the program March 19-20.
“The Fed is more tolerant of higher inflation outcomes in order to work on the other side of their mandate” to cut unemployment, Michael Pond, head of global inflation-linked research in New York at primary dealer Barclays Plc, said by phone on Feb. 21. “Inflation-linked securities offer very cheap insurance because if the Fed is going to get it wrong, they are going to get it wrong on the side of leaving accommodation longer rather than risking removing it too early.”