Though the Fed has yet to give off any sign that it’s ready to pick a fight with the rising tide of deflation, investors are already arming themselves for that possibility by stocking up on bonds and gold to protect against an inflationary uptick. It might be a smart move.

At a luncheon in New York hosted by Thornburg Investment Management, Edward Maran, co-portfolio manager of the Thornburg Value Fund said he expects the Fed to aggressively fight back the against the threat of deflation through quantitative easing. The fear of deflation has been crippling the stock market, Maran added.

“Deflation is a different kind of challenge [than inflation] because the government has to spend money on programs,” he said. “Even maybe spend money foolishly. Give money to special interests. But so far I think the government has been up to the challenge.”

In fact, Maran said the level of quantitative easing from the Fed is going to be “disproportionate and overwhelming; it’s going to be shocking to everyone.” Expect the Fed to spend trillions, Maran said. Though the quantitative easing will bring with it the risk of rising inflation, he said the market “will welcome the removal of deflationary risk.”

Moreover, Maran said the political implications of staving off deflation and getting the economy rolling before the November 2012 elections will cause the government to act sooner rather than later. Because there is usually a lag time for policy action to show its impact, Maran expects to see a policy shift in the first half of 2011, rather than the second half. He pointed to the fate of George H.W. Bush in 1992 as a signal that the Obama administration isn’t going to want to wait on taking action.

“The recession was technically over [in 1992] and the economy was technically growing, but no one knew it and [Bush] ended up losing the election,” Maran said.