BlackRock fixed income chief Rick Rieder thinks the Federal Reserve can stop raising interest rates, though it probably won’t.
Investors should expect central bank officials to follow through on their stated intent to hike at least one more time before the end of the year, Rieder said Thursday during a market talk at CNBC’s Delivering Alpha conference.
“You’ve got to take them at their word that they want to get another 25” basis points, said the asset management giant’s CIO of global fixed income. “I don’t agree with doing it because the data would suggest you can start pausing. I thought we’re going to start posting a while ago, but I think you’ve got to assume when you invest, that they [do] what they’re telling you.” A basis point equals 0.1%.
The rate-setting Federal Open Market Committee last week decided not to raise rates, but indicated in their forecast of individual members’ expectations that another quarter percentage point, or 25 basis point, increase is in the cards before 2023 comes to a close.
Rebecca Patterson, Council for Economic Education Board Chair, and Rick Rieder, BlackRock Senior Managing Director, Chief Investment Officer of Global Fixed Income, at the Delivering Alpha conference in NYC on Sept. 28th, 2023.
Adam Jeffery | CNBC
If the FOMC follows through on that, it would be an even dozen rate increases since it started hiking in March 2022. The fed funds rate, used as a benchmark for many forms of short-term debt, currently is targeted in a range between 5.25%-5.50%.
But Rebecca Patterson, the current chair of the Council for Economic Education and former chief investment strategist at Ray Dalio’s Bridgewater Associates, noted that penciling in another rate increase helps give the Fed choices on its next move but doesn’t lock it in.
“Having that extra 25 penciled in for the rest of the year gives them optionality,” she said. “What this does is it keeps financial conditions tight, it helps the market do the Fed’s job.”
The Fed’s higher-for-longer stance has posed investing challenges, with stocks choppy and bond yields moving sharply higher since last week’s FOMC meeting.
For Rieder, there have been multiple opportunities, including a preference for commercial paper, or the short-term loans that businesses use to finance operations. AA-rated nonfinancial paper most recently yielded 5.34%, according to Fed data. That’s a level that provides low risk and solid income.
“I love commercial paper,” Rieder said. “You can build a portfolio without a lot of interest rate volatility.”
Rieder said he expects the Fed to start cutting at some point, but probably not until the latter half of 2024. Fed officials last week pointed to the likelihood of a half percentage point of reductions next year.
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