Still ‘Tremendous’ Opportunity in Stocks: BlackRock CIO
Rieder is urging the Fed to begin winding down its stimulus. The danger with its $85 billion in monthly purchase of Treasurys and mortgage-backed securities, he said, is that it's being pressed too far and is causing investors to chase yield and returns and to increase leverage.
"Part of why they do it is to create this portfolio rebalancing effect," Rieder said. "That has happened. Now you're creating a bit too much. You don't need it to be this big. You can accomplish the same at a smaller size."
He expects that the Fed will wean the system off the excess liquidity gradually and doesn't anticipate a sustained reversal in equity markets.
(Read More: Fed Warned to Rein in QE)
"Equity markets will have a down trade for a day," Rieder said. "Maybe we go down a couple percent. Then people will realize that an organic economy not stimulated by artificial means is a better investment arena than it is through monetary stimulus."
Earlier on Tuesday, St. Louis Federal Reserve Bank President James Bullard told CNBC that he would be willing to reduce the central bank's bond-buying program in "small increments."
Rieder, who focuses on fixed income, said there's still "tremendous" opportunity in stocks. With the pile of cash on the sidelines and not enough fixed-income creation in a deleveraging world, Rieder told CNBC, "I still think there's money that will come into the market that will keep rates low, especially given what the [Bank of Japan] is doing, and keep the equity market in good shape for a while."
BlackRock is looking for fixed-income investment opportunities globally, as the environment is drastically different now from what it has been for the past 25 years, with interest rates falling continually.
"Now you have to find income in different ways," said Rieder, adding that he likes the loan and the high-yield markets, as well as high-yield bonds in emerging markets, particularly Asia.
"We're trying to source income around the world," he said.