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Inflation ETF Poised For Record High

The iShares Barclays TIPS Bond Fund , which corresponds to the performance of inflation-protected securities issued by the U.S. Treasury, is at the highest since early 2008 and poised to breakout to a record following the Federal Reserve’s new emphasis on stoking inflation. The exchange-traded fund started in 2003.

The principal of Treasury Inflation-Protected Securities, known as “TIPS,” is adjusted with the increase (or decrease) in the Consumer Price Index. These individual securities can also be purchased from the Treasury directly.

“In our view, the Fed is attempting to fuel inflation in an environment that is already filled with rising prices,” said Brian Kelly, founder of Kanundrum Capital, who noted the surge in the TIP ETF following the Fed statement released Tuesday.

"With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate,” wrote the Federal Open Market Committee.

The statement, which used the word “inflation” six times, ended by saying the Fed “is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Last week, the Bureau of Labor Statistics said that consumer prices in August, minus food and energy, were unchanged. All prices rose just 0.3 percent during the month.

“We believe it is incorrect for the Fed to be looking at capacity utilization to determine the level and potential for inflation,” said Kelly. “An integrated global economy like the U.S. has inflationary pressures from more than just domestic factory usage.”

So Kelly and apparently some hawkish members of Bernanke’s own committee believe the Fed Chairman is pouring gasoline on the fire.

Looking at the jump in TIPS securities, the record price in gold and surging prices for wheat, the market disagrees with Bernanke’s assesment that there is no inflation.

But despite what the market says, look for the so-called Helicopter Ben to get out the wallet again after the next meeting and start buying bonds to keep interest rates low and move that CPI needle, strategists said. The Fed has already purchased $1.7 trillion in bonds.

“We believe the odds have shifted to favor QE II in November,” said Michelle Girard, of RBS Economics Research, in a note to clients. “The Fed has clearly taken the markets to the brink of QE, which is further than we would have thought possible in September given what we perceived to be widespread disagreement among the Committee concerning additional support.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On Sept. 22th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (GS), (IBM), (HES), (JOYG), (XBI), (NBR), (NOV), (OXY), (ORCL), (PEP), (POT), (RSH), (SLB), (SU), (SPLS), (RIG), (UPL), (MA), (VRTS); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman’s firm owns (BKS); Finerman and Finerman’s firm owns (BAC); Finerman and Finerman’s firm owns (JPM); Weiss owns (AU), (UXG), (NIHD), (SF), (PJC), (KBW), (QCOM), (AGU), (BAC), (POT), (VZ)

Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (RGR)
Accounts managed by Kanundrum Capital own U.S. Dollars
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (POT) calls
Accounts managed by Kanundrum Capital own Swiss Francs
Accounts managed by Kanundrum Capital are short (BCS)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short Mexican Peso
Accounts managed by Kanundrum Capital are short U.K. Pound
Accounts managed by Kanundrum Capital are short (HYG)
Accounts managed by Kanundrum Capital are short (STT)

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DLUEY)
Virtus Investment Partners own more than 1% of (DRYS)

For Bill Fleckenstein
Fleckenstein owns Gold
Fleckenstein owns Silver

For Eric Jackson
Jackson owns (MSFT)
Jackson is short (RIMM)
Jackson owns (AAPL)
Jackson owns (GOOG)

For Mike Khouw
Cantor Fitzgerald makes a market in (ADBE)

For Robert Breza
***No Disclosures***

For Barry Ritholtz
***No Disclosures***

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