Rick Rieder, the chief investment officer of global fixed income at investment giant BlackRock, appeared on “The Claman Countdown” Tuesday and said that he expects the Federal Reserve will continue to raise interest rates before pausing to let monetary policy changes take full effect.
Rieder said that he believes the next inflation report from the Bureau of Labor Statistics is going to come in high which will deter the Federal Reserve from pausing interest rate hikes intended to tamp down persistent inflation.
“I think now the economy is going to start to slow, but the Fed is still, for today, they are still in a mode of ‘we still have to move,’” Rieder said. “But the one thing I think is important – we’re getting close to the end and I think that’s important for markets.”
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Rieder noted that when the Fed went ahead with its latest rate hike in March, it took a more dovish tone in its statement and with a lower “dot plot” of Fed members’ future expectations about interest rate levels. The Fed recently hiked rates by 25 basis points despite the turmoil in the banking sector
Rieder explained, “I think the way they do it is hike 25 [basis points] but give a clear indication that, gosh, the restrictive policy is already put in place, now we can pause, and I think they’re going to pause for an extended period of time.”
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Host Liz Claman asked BlackRock’s Rieder whether his view of the terminal rate for interest rate hikes has changed from the 5.25% he previously projected.
“I think they’re going to get to five and a quarter and they’re going to leave it there for a while,” Rieder said.
He explained that the Federal Reserve often talks about how there is a “long and variable lag” between monetary policy actions being taken and those policy shifts translating into a real-world impact on the economy. Economic research typically indicates it can take 18 months to two years for more restrictive economic policy to materially affect inflation.
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Rieder said there are indications that the Fed’s tighter monetary policy is starting to affect the “interest-sensitive parts of the economy” and that commercial real estate is at the “epicenter” of those impacts.
“All of a sudden, the interest-sensitive parts of the economy are really starting to slow,” Rieder said. He added that there are some sectors of the economy that have remained more resilient despite the higher interest rates, and highlighted those as areas where investors can look to put their money.
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“In places where they’re not as interest rate sensitive, you can feel pretty good,” Rieder said, citing healthcare, technology, and defense as areas of the economy with stable cash flows that aren’t exposed to as much interest rate risk.
