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Forget Deflation, Inflation on Horizon: Strategist

The Federal Reserve's monetary policy makes inflation—not deflation—a big risk, Michael Pond, a Treasury strategist at Barclays Capital, told CNBC on Wednesday.

“Higher inflation is more likely down the road than lower inflation because the Fed continues to step up its stimulus policies,” he said. “The Fed’s policy is keeping rates low—which is one reason we’re seeing negative rates, real rates at the front end of the curve.”

This follows Kansas City Reserve Bank President Thomas Hoenig's recent remarks that the Fed is undertaking a "dangerous gamble" by keeping rates near zero for so long.

Despite continued worries about deflation, said Pond, a low-inflationary environment is more likely in the near-term while full-out inflation jeopardizes economic recovery in the long-term.

"The turn in inflation has already happened," he said.

While core consumer prices—excluding food and energy—essentially were unchanged during the first four months of the year, Pond said, the most recent reading had a three-month annualized trend of 1.5 percent. Private rent data, for instance, demonstrates that rental prices are ticking up, he said.

“We’ve been calling for a turn in rental prices and that’s what’s picked up inflation measures,” he said. “It just hasn’t hit the government data yet, but it’s starting to.”