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BlackRock's bond king: Fed rates could already be at neutral given the pockets of economic weakness

Key Points
  • BlackRock global fixed income CIO Rick Rieder sees a December rate hike and then maybe only one or two next year.
  • However, he says, "Most of the rate adjustment that's priced into the market today has happened."
  • Rieder's comments come ahead of Fed Chairman Jerome Powell's address to The Economic Club of New York around noon ET on Wednesday.
We're not going into any recession for an extended period of time, says pro

BlackRock global fixed income CIO Rick Rieder told CNBC on Wednesday that an argument can be made that Federal Reserve-controlled interest rates are already pretty much at so-called neutral, a level neither accommodative nor restrictive to the U.S. economy.

Rieder, who oversees $1.88 trillion in bond assets for the world's largest money manager, believes the Fed at its December meeting will increase rates for the fourth time this year.

"Then I think they're going to be very data-centric," he said in a "Squawk Box" interview, adding the Fed could halt rate hikes altogether in 2019. "Most of the rate adjustment that's priced into the market today has happened."

As a base case, he sees one or two more hikes next year instead of the central bank-projected three moves.

Wall Street will be looking for more clues on the future of rates when Fed Chairman Jerome Powell delivers the most important address in his short tenure at the helm. He speaks around noon ET on Wednesday at The Economic Club of New York.

President Donald Trump, who's repeatedly blasted Powell for what he called unnecessarily tightening and risking economic growth, condemned the Fed chief in a Washington Post interview Tuesday saying, "I'm not even a little bit happy with my selection" of Powell.

Powell's remarks in early October about rates being a long way from neutral touched off a market rout on concerns that central bankers would increase rates aggressively next year.

In recent weeks, Fed officials have taken care to soften that outlook as certain pockets of the U.S. economy signaled weakness. Powell himself two weeks ago in Dallas acknowledged the pace of global economic growth was slowing.

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Rieder's take: "I've gotten into this debate before with officials there and otherwise. If you take the interest sensitive parts of the economy, they are braking markedly. Housing. Small business. Autos. So are we at neutral? You could debate that we're there today. Will the Fed go one or two more times to get it closer to 3 percent? I think that's right."

The current range for the central bank's benchmark federal funds rate, which banks charge each other for overnight lending, stands at 2 percent to 2.25 percent.

As for overall economic growth, Rieder sees a slowdown from the unrevised 3.5 percent third-quarter advance and the 4.2 percent surge in the second quarter. "I think growth is slowing. I think we're going to go to 2 percent GDP next year. " The Fed needs to take that into consideration and the fact that inflation still remains rather tame, he suggested.

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