Investors see inflation falling, central banks as biggest risk to markets, Bank of America survey shows

Published Tue, Jan 18 202212:02 PM EST

Professional investors are growing less afraid of inflation and more leery about central banks' reaction to it, according to the latest Bank of America Fund Manager Survey. The poll of 374 panelists for January showed that even with prices surging at their fastest pace in nearly 40 years, the share of those expecting the current conditions to persist is diminishing. In fact, the net 48% of respondents expecting inflation as measured through the consumer price index to decline is the most since February 2009. Along with that, just 36% of investors think higher inflation is permanent, while 56% see it as "transitory," a term the Federal Reserve had been using to describe inflation but ditched a few months ago as the rise proved stronger and more durable than policymakers had expected. Still, inflation hasn't faded completely from the market's view as a threat. The BofA survey results, which come from investors who manage some $1.2 trillion in assets, come with the consumer price index running at 7% year over year in December , the highest since June 1982. Some 21% of respondents still consider it the biggest "tail risk," or low-probability event that could cause substantial damage. The top of that list is "hawkish central bank rate hikes," or the possibility that the Federal Reserve and its counterparts could storm in with interest rate increases aimed at curtailing skyrocketing prices. Indeed, Fed policymakers in recent weeks have been virtually unanimous in saying they see three 25 basis point — 0.25 percentage point — hikes coming in 2022. Traders, however, are pricing in an even more aggressive Fed. Fed funds futures contract indicate the central bank's benchmark rate will be 0.96% by the end of the year, meaning that the market has completely priced in four increases. The bond market has responded in kind. Treasury yields on Tuesday hit pre-pandemic highs , with the 2-year rate , which is the note most closely pegged to the Fed, breaking the 1% barrier to touch a high of 1.05%. The 10-year Treasury yield rose as high as 1.85% in a breathtaking surge that has seen the benchmark note rise more than half a percentage point since early December. Yields move opposite price, meaning the surging rates are the result of investors shying away from government debt, a move typical during times of inflation.

Edwin Lopez sorts the money in the cash register at Frankie's Pizza on January 12, 2022 in Miami, Florida.

Joe Raedle | Getty Images

Professional investors are growing less afraid of inflation and more leery about central banks' reaction to it, according to the latest Bank of America Fund Manager Survey.

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