The US Federal Reserve could raise key interest rates in the US even more, up to six percent, says Blackrock’s chief investment officer, Rick Rieder.
He cited persistently high inflation combined with a strong labor market in the USA as the reason.
Six percent would be the highest level in the US for 20 years.
The US Federal Reserve could raise key interest rates in the US much more than previously assumed to six percent, the highest level in 20 years. Blackrock’s chief investment officer, Rick Rieder, wrote in a statement this week. Blackrock is the largest wealth manager in the world. He cited persistently high inflation in the USA combined with a strong labor market as reasons for his interest rate forecast.
“With wages strong and inflation stubborn, we think it’s likely that the Fed will need to raise interest rates to 6% and then hold them for an extended period to slow the economy and bring inflation down to close to 2%,” he said Rieder in his statement on Tuesday.
Earlier, US Federal Reserve Chairman Jerome Powell signaled before the US House that the central bank was ready to increase the pace of interest rate hikes. This fueled expectations that the Fed could hike rates another 0.5 percentage point at its next meeting on March 22nd. As a result, shares and the euro came under pressure. The European Central Bank (ECB) has already announced that it will raise key interest rates in the euro zone by 0.5 percentage points on March 16th.
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The Fed has hiked interest rates from near zero to 4.75 percent today since March 2022 in a bid to bring inflation towards the 2 percent target. In June 2022, US inflation hit a 40-year high of 9.1 percent. Although it has fallen since then, it was still well above target at 6.4 percent in January.
Inflation is proving to be very persistent in both the US and Europe. It has spread beyond the initial energy price shock to the wider economy. The monetary watchdogs are particularly concerned that the core rates of inflation – excluding energy and food – will remain at a high level or even rise. Some key areas that had been driving inflation down in recent months remained stubbornly high in January, Rieder said. The latest data showed strong dynamics in the inflation rate.
“We are confident that inflation will not peak last year. But the possibility of inflation lasting longer suggests the Fed will have to hike rates longer than previously thought,” he wrote.
“Given the recent strength in labor market data, various price indicators and economic growth, policymakers’ determination appears to be crucial to bring inflation back to more normal levels,” he added.
US companies had last month with 517,000 jobs created far more new jobs thans the forecast of 185,000. The unemployment rate was also below estimates.
Rieder said the prospect of interest rates continuing to rise is not in itself surprising. Nevertheless, it will increase the uncertainty on the markets. “Today, however, the economy is no longer as sensitive to interest rates as it was in previous decades. Their resilience, while a virtue, complicates the situation for the Fed,” he added.
This text has been translated from English. You can read the original here.
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