Which investment strategy uses TIPS to hedge against tariffs and inflation?

Using long TIPS (Treasury Inflation-Protected Securities) as a strategy to hedge against tariffs and inflation is effective because TIPS are specifically designed to protect investors from inflation. Their principal value increases with inflation, as measured by the Consumer Price Index (CPI). When tariffs are imposed, they can lead to increased prices on goods and services, contributing to inflationary pressures. By holding TIPS, an investor can ensure that their investment maintains its purchasing power in an inflationary environment caused by tariffs or other economic factors.

Investing in long TIPS allows the investor to benefit from the inflation adjustments, which means that not only do they receive interest payments, but the principal amount is also adjusted to reflect inflation. This makes them a strategic choice for those looking to insulate their portfolios from the negative effects of rising prices.

In contrast, the other options do not provide a direct mechanism for protecting against inflation or the specific risks posed by tariffs. Buying traditional bonds would not offer the same inflation protection, while selling stocks could expose one to market volatility without the inflation hedging that TIPS provide. Shorting TIPS would actually position an investor to profit from falling inflation expectations, which is contrary to the goal of hedging against inflation risks.