Fed Should Get Out of the Economy's Way, BlackRock's Rieder Says

(Bloomberg) -- The U.S. economy is strong and the Federal Reserve is right not to lower interest rates further, according to BlackRock Inc.'s Rick Rieder.

The Fed left its key rate unchanged at its May 1 meeting, and Chairman Jerome Powell pushed back against pressure from the markets and U.S. President Donald Trump for a cut, saying there wasn't a “strong case” to move in either direction. Markets pared bets on the next move being a cut, and U.S. stocks fell the most in more than five weeks.

“There's no need to shift rates down,” Rieder, BlackRock's chief investment officer for global fixed income, wrote on May 2. “The economy is doing quite nicely, so if both policy makers and politicians can leave it alone, then higher wages will eventually effectuate a slowing in the growth of inventory builds and corporate capital expenditures, which in turn will recalibrate growth moderately lower.”

Powell has played down the threat of weak inflation by repeatedly noting it may be due to “transitory” factors. Morgan Stanley, by contrast, has told investors not to “buy into Goldilocks,” a scenario of solid but noninflationary growth.

 
Rieder advocated a change in the Fed's balance-sheet management, saying its should shorten the average maturity of holdings to moderately steepen the yield curve and improve inflationary expectations. Yet he agreed low inflation wasn't a concern.

“There is more dynamism to the U.S. economy today than many appear willing to admit, as more people are working, more people are receiving higher wages for lower-and middle-income jobs, and price levels aren't accelerating alongside of this remotely like they have in the past,” he said. “The Fed should be cheering this fact and should get out of the way and let it continue for as long as possible.”

--With assistance from Rich Miller.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Catherine Bosley, Iain Rogers

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