BlackRock’s Rieder says the Fed should begin rolling back ‘extreme policy accommodation’ as inflation data comes in hotter than expected

FILE PHOTO - Rick Rieder, BlackRock's Global Chief Investment Officer, speaks during the Reuters Global Investment Outlook Summit in New York City, U.S., November 14, 2016.  REUTERS/Brendan McDermid
Rick Rieder, BlackRock’s Global Chief Investment Officer, speaks during the Reuters Global Investment Outlook Summit in New York

  • BlackRock’s Rick Rieder doubled down on his stance the Fed should start pulling back on ultra-accommodative policy.
  • Rieder said Thursday’s inflation data shows prices are overwhelmingly high.
  • He said the Fed will be better served fulfilling its mandate if it begins discussing tapering.
  • See more stories on Insider’s business page.

BlackRock’s Rick Rieder doubled down on his stance that the Fed should consider rolling back its accommodative policy stance after key inflation data came in hotter than expected on Thursday.

CPI rose 5% year-over-year in May, higher than the consensus estimate of 4.7%. May Core CPI, which excludes volatile food and energy components, came in at 0.74% month-over-month and 3.8% year-over-year, well above the consensus forecast and driven higher by used vehicle prices.

The BlackRock chief investment officer of global fixed income said the data is just the latest sign that certain parts of the economy don’t have sufficient product inventory to supply the demand at current prices.

The Federal Reserve has suggested that some of the price gains are transitory, and therefore it will not be changing its policy stance until there is sustained inflation. Rieder, who is also the head of the BlackRock global allocation investment team, said that framework may need to change.

“Ongoing adherence to the newly minted Average Inflation Targeting (AIT) framework in the face of a torrid 2021 economic recovery that is visibly supply constrained, risks upending the very stability that the AIT framework claims to seek to achieve,” Rieder said.

The Fed would be better served in fulfilling its mandate to begin to discuss the tapering of asset purchase and to attempt to avoid the ” destabilizing influences that can result from excessive use of extreme policy accommodation,” he added.

Rider also said the inflation data out today is an “overwhelming” sign that prices are moving too high in some areas as demand grossly outpaces supply.

“In our view, the pursuit of inflation merely for inflation’s sake poses a very real problem: That problem is that inflation in daily necessities is disproportionately felt by lower-income cohorts,” said the CIO.

In an interview with CNBC on Monday, he said he is confident that the market is ready for the Fed to taper its asset purchases and remove “excessive emergency conditions” that have become a market risk.

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BlackRock’s Rieder says the Fed should start tapering asset purchases ‘sooner rather than later’

Rick Rieder
  • BlackRock’s Rick Rieder said the Fed should start tapering its asset purchases in a new interview Monday.
  • Rieder said the Fed has done an “incredible job” during the pandemic, but he believes its “time to evolve the policy.”
  • The BlackRock bond CIO added that he believes the Fed can begin tapering asset purchases and still maintain an “accommodative” stance.
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BlackRock’s global fixed income chief investment officer, Rick Rieder, says the Fed should start tapering asset purchases “sooner rather than later.”

In an interview with Bloomberg on Monday, Rieder said he believes the Fed has done “an incredible job” rescuing the American economy amidst a global pandemic but thinks it’s “time to evolve the policy here” and begin tapering asset purchases.

The Federal Reserve, under the direction of chair Jerome Powell, said it will continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals” in a meeting back in December.

Rieder’s comments stand in opposition to Atlanta Fed President Raphael Bostic, who told reporters last week that he believes it’s too soon to consider changing interest rates or tapering asset purchases.

“There is a lot of healing that would need to happen before I would want to start to be thinking about us having made substantial progress,” Bostic said in comments to reporters after a speech at a Consumer Financial Protection Bureau conference.

“Right now, I’m not sure I am at a place where I would be wanting to force that (tapering) conversation at a committee level,” he added.

Rieder, on the other hand, said that markets are “awash with liquidity today” and that it’s fueling inflation concerns.

Some of those concerns may be transitory, according to Rieder, but some are more durable.

“If you said to me what’s going to be durable in terms of inflation, it will be shelter. It’ll be the fact that we don’t have enough homes,” Rieder said.

The BlackRock CIO highlighted data from National Home Builders Association shows lumber prices alone have driven up the value of the average new single-family home by over $30,000 since last April.

Rieder did say that he’s not sure if the liquidity dynamic in markets today will create the long-term inflation some market pundits are expecting, but also argued the Fed should begin moving away from its emergency policies either way.

“So if I were the Fed, I mean I would taper down the amount of buying they are doing in the front end,” Rieder said.

“Save some powder for continuing to be a buyer at the longer end of the yield curve in case people get too worried about inflation, but I would start to taper sooner rather than later, but you know, we’re going to watch how they’re going to think through that,” Rieder added.

Rieder also said that he doesn’t believe a mild tapering will hurt markets and noted that the last jobs report was not representative of the true hiring levels seen in the US.

“Hiring is going to take place, it’s got real momentum to it that won’t, because of the Fed tapering, will not slow down in any way, shape, or form.”

Rieder concluded by saying that he believes the Fed can evolve its policy and still be “accommodative” towards markets.

Read more: Goldman Sachs says these 23 stocks have strong pricing power and rock-solid margins that could protect against soaring inflation

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BlackRock’s bond chief Rick Rieder breaks down why he’s not worried rising yields will hurt the stock market

Rick Rieder

The recent rise in bond yields has left some investors worried about what it means for the stock market, but Rick Rieder told CNBC he’s not that worried. 

As the 10-year Treasury yield rose to its highest point in over a year Thursday, the CIO of global fixed income explained that the rise in yields should be taken into historical perspective.

“We started from negative 1%. The history of real rates, on average the last 25 years, the average has been about 1.5% positive and usually, when you get this sort of economic growth, you’re talking about real rates that go to 3%, 4%, 5% positive,” said Rieder. “We may get to zero percent real rates, so you still have an extremely accommodative environment.” 

Economic data suggests that the US will see an “explosive growth rate,” and markets are anticipating that yields will have to move higher.

While this happens he anticipates there will be a “little bit of uncertainty” in the stock market and volatility may rise, but then stocks will “recalibrate.”

“I’m not that worried about equities,” Rieder said. 

The bond chief added that there are some stocks with high-flying valuations that will likely pull back as yields move up. High-growth stocks like those in the technology sector are seen as particularly vulnerable to a move higher in yields. On Thursday the Nasdaq suffered over a 3.5% intraday decline. 

Rieder mentioned that his team has been looking into specific areas of technology included AI and the semiconductor space, but they’ve also been adding outside the sector.

“We’ve added to financials. We like the cyclicals, we like the consumer space quite a bit. The adds have been bigger there than in pure technology,” Rieder said.

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