Federal Reserve

Worried about Fed hikes? Trump tax cuts could save the day, BlackRock's trillion-dollar bond guru says

Tracking Fed's path to normalization

The package of tax cuts proposed by President-elect Donald Trump could do "significantly more" to help the economy, than Federal Reserve interest rate hikes could do to hurt growth, said BlackRock's chief investment officer of global fixed income.

Rick Rieder, who oversees $1.3 trillion in bond assets at the world's biggest investment firm, told CNBC's "Squawk Box" on Thursday, "There are multipliers from taxes."

"If you got a 100 basis-point increase in the mortgage rate, but you get a 5 percent cut in the personal tax, you end up doing significantly more [positively], than you do [in damage] because of the rate hike," he contended.

The Fed, after its two-day December policy meeting on Wednesday, increased rates by a quarter point for the second time in a year, while projecting three hikes next year instead of two.

Central bankers last raised the cost of borrowing money in December 2015, the first such move in more than nine years.

Rieder said the latest hike was overdue, arguing it could have happened as early as the Fed's June meeting. Either way, he thinks it does not really matter. "There's been so much focus on a 25 basis points [hike] at the front end of the yield curve."

"It's not the short end of the yield curve that really drives where funding takes place in the marketplace today," he said. "It's actually at the back end of the curve. That's where capex [capital expenditures], where mortgage funding moves."

In this case, higher rates, which historically tend to be a drag on the economy, could have the opposite effect, Rieder said. "In fact, I would argue that you are creating more equilibrium today, which gives you more confidence to invest."

Another move to normalization by the Fed "gives people a sense we're not distorting interest rates; we're not distorting asset valuations, he said. "This is where you see capex growth. This is where you see companies — instead of lever-buy back stock, lever-buy back stock — now [say] we've got to grow my business."