BlackRock's "Yellen index" says the labor market is strong enough for the Fed to end the era of zero rates now if it wanted to.
But BlackRock strategists expect, instead, that Fed Chair Janet Yellen and other members of the FOMC will wait the "considerable time" they have referred to in their statement to hikes rates. That puts the first hike most likely in June.
The proprietary index is made up of a series of labor and growth metrics that the Fed would be watching as it contemplates interest rates, and the index is showing improvement all fronts.
"It's pretty clear today that we hit virtually every metric," said Rick Rieder, BlackRock CIO of Fundamental Fixed Income. "We're at a place today where the Fed would move. Quite literally, we believe they could move today based on what the data shows."
Rieder said the momentum of the index is also flashing a green light on the employment outlook.
"This is a Fed that's been pretty clear about as long as inflation stays moderate, and as long as inflation stays below their goal, that they'll be patient in terms of when they can move or when they have to move," Rieder said. He said there is a chance the Fed could move up its first rate hike to the March-April period if the data continue to improve.
"The odds are, given inflation being low and especially with what's happening with energy, that they wait until June," he said.
Even though the indicator is flashing that now would be a good time for a rate hike, Rieder said markets are not yet overheating.
"I don't think we're in bubble conditions in the markets. I just think the longer we wait, you run the risk of that perpetuating itself," he said. "So I think the window is open to move. I think they can move. ... I think they'll be deliberate. We're watching pretty carefully as markets can reach extremes. I don't think we're there yet, but we're certainly keeping an eye on it."