Rebecca Patterson, chief strategist at Qiaoshui, said in an interview that US interest rates need to be raised much higher than the Fed thinks to contain inflation.The message to the Fed is clear: the Fed needs to be more hawkish to meet its inflation target.

Patterson said the market's current valuation was based on a fall in inflation to about 3 per cent over the next three years, which would require a massive tightening of monetary policy by the Fed. Qiao Shui believes that there is a question mark over whether inflation can return to the level expected by the market under the current monetary policy of the Federal Reserve.

At present, the market expects the federal funds rate to peak at just over 3 per cent, which is higher than the 2.8 per cent level implied by Fed policymakers to control inflation. Patterson and her colleagues in Bridgewater are skeptical of this point. But even current expectations sent the yield on 10-year Treasuries soaring to nearly 3 per cent this month, a new high in more than three years.

Us CPI rose 8.5 per cent year-on-year in March, the fastest pace since December 1981 and more than 7.9 per cent in February, according to the Bureau of Labor Statistics. CPI grew by more than 6 per cent for the sixth month in a row. Excluding volatile food and energy prices, core CPI rose 6.5 per cent in March from a year earlier, up from 6.4 per cent in February and the fastest increase since August 1982.

Qiaoshui expects inflation to be stubborn and core US CPI will remain at 6.5 per cent for a year, rather than the inflection point that many markets believe to peak.Bridgewater declined to say how many times they think the Fed will raise interest rates, but Patterson saidThe Fed's benchmark interest rate needs to be much higher than expected to bring inflation back close to the Fed's 2 per cent target.

If the Fed raises interest rates so aggressively, yields on Treasuries will continue to rise at all maturity levels. "there is good room for 10-year Treasury yields," Patterson said. 3% is really easy to see, and it doesn't rule out that we can see 4%. "

In terms of specific investment strategiesBridgewater is shorting US Treasuries. In response to an environment of persistent inflation and higher interest rates, Qiaoshui has established a diversified portfolio of assets, including cyclical commodities, gold and inflation-linked bonds. On the equity side, given the Fed's sharp withdrawal of liquidity, they shorted US stocks and long the Japanese stock market.

Qiaoshui's return in the first quarter of this year was 16.3%, far outperforming the u.s. stock and bond markets over the same period.

Patterson is a senior market person whose views have attracted a lot of attention because of her accurate judgment many times in her career. She is also a member of the Federal Reserve Advisory Committee.

Earlier, the Wall Street news website article analyzed that inflation in the United States has entered a spiraling self-reinforcing cycle, which requires extremely strong tightening measures that far exceed market expectations. The article lists the drivers of stubbornly high or even further rising inflation in the United States. It also warns that it is getting closer and closer to the big reset. For more analysis, see "US interest rate hikes are expected to be 75-100 basis points at a time, but inflation will be even higher."

CurrentTraders around the world have opened the textbook of stagflation.Investment and portfolio building manuals since the financial crisis may no longer apply. Several asset management investment officers believe that persistent inflation requires investors to focus on inflation-linked sensitive assets-bonds, gold and some physical assets.