Rick Rieder of BlackRock said the Fed will raise interest rates again on Wednesday, but will then pause for a while to let the effects of previous hikes play out.
Rick Rieder of BlackRock said the possibility of an unexpected early move to the U.S. debt ceiling, and recent troubles at regional banks, may not deter the Fed from raising interest rates at its policy meeting on Wednesday.
Rieder, BlackRock’s global chief investment officer for fixed income and head of the firm’s global allocation investment team, said in a telephone interview Tuesday that the Fed will likely raise its benchmark interest rate by 25 basis points to 5%-5.25% on Wednesday.
He believes the Fed will then pause rate hikes for a period of time to allow the effects of previous rate hikes to gradually play out. The Fed has raised interest rates by a total of 500 basis points in the past year.
Rieder will be watching the Fed’s policy statement, scheduled for 2 p.m. ET on Wednesday, for any changes to the Fed’s previous language around credit conditions and their impact on the economy in the wake of recent bank failures. After its last policy meeting, the Fed issued a statement on March 22 saying that “recent developments could lead to tighter credit conditions for households and businesses, with implications for economic activity, hiring, and inflation.”
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Rick Rieder of BlackRock said the possibility of an unexpected early move to the U.S. debt ceiling, and recent troubles at regional banks, may not deter the Fed from raising interest rates at its policy meeting on Wednesday.
Rieder, BlackRock’s global chief investment officer for fixed income and head of the firm’s global allocation investment team, said in a telephone interview Tuesday that the Fed will likely raise its benchmark interest rate by 25 basis points to 5%-5.25% on Wednesday.
He believes the Fed will then pause rate hikes for a period of time to allow the effects of previous rate hikes to gradually play out. The Fed has raised interest rates by a total of 500 basis points in the past year.
Rieder will be watching the Fed’s policy statement, scheduled for 2 p.m. ET on Wednesday, for any changes to the Fed’s previous language around credit conditions and their impact on the economy in the wake of recent bank failures. After its last policy meeting, the Fed issued a statement on March 22 saying that “recent developments could lead to tighter credit conditions for households and businesses, with implications for economic activity, hiring, and inflation.”
In Rieder’s view, that statement was “crucial” at the time. He said there will no doubt be a marked contraction in credit following the collapse of Silicon Valley Bank and Signature Bank in March and the takeover of First Republic Bank on Monday. Rieder expects regional banks to scale back lending, coupled with restrictively high interest rates, will slow the economy and keep inflation down.
Rieder believes that the Fed may be signaling that it is at the end of the rate hike cycle, or fairly close to the end. He said the Fed was right to show a little patience, though he expected the central bank to remain hawkish on inflation.
The Fed has been tightening monetary policy over the past year by rapidly raising interest rates, starting with rates near zero, to rein in still-elevated inflation. While policy tightening can have a long and variable lag to have an impact, it can also be felt very quickly, as has been the case with regional banking turmoil over the past month and a half, Rieder said.
While Rieder sees some chance of a shallow U.S. recession, he also expects the first half of 2023 to look pretty good before a marked slowdown in the second half.
Rieder said he thinks the Fed will start cutting rates in 2024, possibly in December. The Fed may have to cut rates sooner if strains in the banking sector become more pronounced, but he sees the odds of that as very low, he said.
(This article is translated from MarketWatch)