BlackRock Fixed Income CIO: The Fed should cut rates by 50 basis points in September, not 25
Rick Rieder believes that data such as credit card delinquencies and auto loan delinquencies are significantly increasing. He suggests that the Federal Reserve needs to put pressure on interest rates at the September meeting to revive economic growth and alleviate consumer debt pressure
25 or 50? There is a heated debate in the market about the magnitude of the Fed's rate cut in September. Especially after the significant downward revision of the March one-year employment data last night, the uncertainty about the future direction of interest rates has increased.
Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, believes that the Fed needs to put pressure on interest rates at the September meeting to revive economic growth and alleviate consumer debt pressure.
"If it were up to me, I would cut rates by 50 basis points," he said on the Opening Bid podcast on Wednesday.
However, Rieder believes that the Fed is more likely to cut rates by 25 basis points each time, continuing until 2025.
He warned that the current economic conditions are deteriorating: "Data such as credit card delinquencies and auto loan delinquencies are significantly increasing, which reminds me of similar data performance during the financial crisis. We are not there yet, but we are starting to see this significant growth."
The contradiction between weak employment data and overall economic performance has left market expectations for rate cuts in a state of uncertainty, with investors adopting a wait-and-see attitude.
On one hand, the labor market is showing signs of slowing down. The report from the US Department of Labor last night showed a preliminary significant downward revision of 818,000 in the number of non-farm payroll additions in the US over the past year, indicating that the US labor market is not as robust as imagined, and the cooling of the job market may last longer or continue for a longer period.
On the other hand, despite the clear slowdown in the economy, it still shows resilience. The ISM Services Index for July showed improvements in business activity, new orders, employment, and more. Retail sales in July increased by 1%, indicating an increase in consumer spending.
Brian Cornell, CEO of Target, also stated that recent performance has improved, with a 3% increase in store traffic.
Jan Hatzius, Chief Economist at Goldman Sachs, expects the number of rate cuts this year to reach 75 basis points, with the final rate cut in December.
He said:
"The reduced risk of an economic recession strengthens our forecast that the Fed will only cut rates by 25 basis points at the September meeting."