BlackRock Rick Rieder, global chief fixed income investment officer and a potential successor to the Federal Reserve chairman, has stated that the Fed should cut interest rates again in December, not next year, and he also explained why the market has already signaled a rate cut.
He believes that inflation is cooling, the labor market is unstable, and that this is due to artificial intelligence. Driven by productivity gains, the labor market is quietly softening, while the pain of interest rates is being felt precisely where it hits hardest: think of small businesses, low-income borrowers, and housing.
Rick Reid is a senior executive at BlackRock , currently serving as the Chief Investment Officer (CIO) of the Global Fixed Income division and a Senior Managing Director at BlackRock , responsible for managing the company’s core fixed income business and global allocation investment team.
In addition, he actively manages the iShares Flexible Income Active ETF (BINC) and has received Morningstar recognition. Reed received the Morningstar 2023 Outstanding Investment Portfolio Manager Award. Managing a platform with nearly $2.4 trillion in assets, any insightful observations on the economic situation from Reed are almost impossible to ignore.
He has also recently been considered a potential successor to Federal Reserve Chairman Jerome Powell, making his comments on interest rate cuts even more noteworthy.
What are the reasons for the December rate cut?
As Reid put it, "One thing I've learned from the markets is that you have to interpret what the markets are saying." For him, this is a reminder that the data is actually "whispering"—the Fed's next move is long overdue.
First, inflation is not what it used to be. Reid's view on inflation is simple: raising interest rates cannot solve all the problems.
Which sectors are experiencing irreversible inflation? Healthcare, insurance. and education “It’s quite difficult to make interest rates favorable for healthcare, insurance , and education ,” he said. “Therefore, the Fed can raise or lower interest rates at will, but these costs are unlikely to change because they are not related to borrowing.”
However, overall, the situation appears relatively calm: "Six-month core personal consumption expenditures...are around 2.5%", and "the five-year breakeven inflation rate is 2.5%". Therefore, inflation is cooling rather than returning, and the overall market seems content with this.
Furthermore, Reid's warning targets employment, not economic growth.
Reed points out that artificial intelligence and automation are increasing productivity while reducing staff numbers, especially in data centers. Such hot sectors. He said, "You don't see many people... what you see is massive capital expenditure, and productivity is exploding everywhere."
“While this is good for profit margins, it’s much more difficult for workers,” he added.
In conclusion, Reid maintains that, excluding healthcare, job growth is actually negative, meaning a possible rate cut in December looks more like a relief than a risk.
(Article source: CLS)
