The Federal Reserve is fast-approaching a scenario in which the ability to enact any further rate hikes in the foreseeable future is diminishing, BlackRock’s Rick Rieder has said.
Rieder, who is chief investment officer for global fixed income, made the comments in the wake of the Federal Reserve holding rates steady at its April 27 meeting.
The Citywire A-rated manager has long predicted a ‘wait-and-see’ approach from Janet Yellen but its ability to keep the door open to further rate increases, following December’s landmark decision, now seems limited.
‘We’ve long argued that the back half of the year would see a weakening in employment growth, as reduced earnings tends to translate to lower payrolls with a roughly six-month lag,’ Rieder said in an investor update.
‘If that is the case, it will make it optically difficult for the Fed to hike rates much at all, particularly should inflation remain weak. We do believe that inflation and inflation expectations will firm somewhat from here, based on base-effect calculations alone, but we do not believe it will run too hot.'
Rieder said conditions appear more favourable in international markets but he is increasingly conscious of worsening dynamics for the US, which will have a huge bearing on the future policy path.
‘We are witnessing some concerning “warning signs” for the economy domestically. More specifically, large corporations (as proxied by those firms comprising the SPX) are in the process of printing their sixth consecutive quarterly earnings decline, which has profound implications for forward growth potential in capital expenditures and hiring.’
Rate hikes on hold
While Rieder believes there could be a hike on the cards, it would still be largely data dependent and he does not foresee it moving from its hold position over the next few months.
‘A good deal will depend on global factors as well as those within the US, so we continue to suggest that investors look to global financial conditions, as well as to signs of any slowing in US payroll growth, to adjust expectations around when the next hike may take place.’
Rieder has been a long-term commentator on rate rises and criticised the Fed at the back end of 2015 for missing what he viewed as a prime opportunity to hike.
Rieder is a named manager across seven funds covering global bonds and mixed asset investment. One of the largest of these is the BGF Fixed Income Global Opportunities fund, which has $8.5 billion in assets.
This fund returned 3.8% in US dollar terms over the three years to the end of March 2016. This compares to a 7.7% rise by the Barclays Global Aggregate USD TR, its Citywire-assigned benchmark, over the same period.