Inflation traders brace for short-term shock from tariffs, immigration policies

Inflation traders are positioning for a consumer-price index that produces a seven-month string of annual headline readings that are near or slightly above 3% on the consumer-price index — a stretch that’s tantamount to a short-term shock in price gains.

The description of a short-term shock comes from Gang Hu, a trader at New York hedge fund WinShore Capital Partners who has long been prescient about the path that U.S. inflation is most likely to take. In July 2022,

Hu told MarketWatch there was no reason to expect inflation would come down fast. At the end of 2023, when many traders were focused on the possibility of multiple interest-rate cuts, Hu made the argument that Federal Reserve officials weren’t incentivized to cut borrowing costs immediately. The Fed did not start lowering rates until September 2024, when it delivered the first of three rate cuts toward the end of last year.