The Federal Reserve is anticipated to maintain its benchmark interest rate, currently at a 22-year high, according to Rick Rieder, BlackRock (NYSE:BLK)'s Chief Investment Officer of Global Fixed Income and Head of the firm's Global Allocation Investment Team. This announcement is expected later today at 2 p.m. Eastern Time.
Rieder suggests that while the Federal Reserve may consider another rate hike in its November meeting, there is potential disagreement within the committee over this move. Since March 2022, the central bank has been gradually increasing its benchmark rate from near zero, leading to a current target range between 5.25% and 5.5%. Despite these increases, Rieder advocates for a halt in further hikes due to significant inflation deceleration and a slowing employment rate.
The central bank's Chair, Powell, has been working towards achieving a delicate balance for the economy: slowing it down enough to curb inflation without triggering an economic downturn. This approach has stirred concerns among investors who worry that overly stringent monetary policies could lead to a severe recession.
Rieder points out signs of strain in the U.S. economy, indicating a significant slowdown in job openings, an increase in credit card balances, and a decrease in accumulated savings. Lower-income borrowers are particularly affected by these higher interest rates.
The broader U.S. stock market has seen a dip this month, with the S&P 500 falling 1.4% as investors shift their focus to Powell's upcoming press conference today. Certain retailers such as Macy's Inc. (NYSE:M), which reported a loss and sales decline in its second quarter, and Dollar General Corp (NYSE:DG)., whose shares have dropped 53.3% this year, are under pressure.
Rieder notes that U.S. economic growth is slowing down, with three-month moving averages indicating a significant drop in inflation from peak levels. The core CPI has dropped to 2.4% on an annualized basis over three months, down from 6.9% in June 2022.
Despite these figures, Rieder anticipates that Powell will emphasize the Fed's cautious approach in evaluating economic data to determine if another rate hike is necessary. He predicts that the Federal Reserve may lower rates in the second half of next year, dismissing market expectations of a cut in the first quarter of 2024 as "overenthusiastic". He suggests that investors should consider slowly adding to the three-to-five-year part of the yield curve in the bond market, where yields beyond the ultra-short end could be attractive if the Fed cuts rates next year.
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