BlackRock's Rick Rieder on the Fed's next move and how he's investing around it

Published Tue, Apr 27 202111:56 AM EDTUpdated Tue, Apr 27 20212:29 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

BlackRock's Rick Rieder said the Federal Reserve should start talking about tapering its bond buying soon and is likely to start cutting back on its monthly purchases in the fourth quarter, possibly as early as October. That is ahead of the view of some others on Wall Street, who expect the Fed to pare back bond purchases early next year. Fed economists do agree that the central bank could begin discussing cutting back on its quantitative easing program, or asset purchases, as soon as its June meeting. The Fed is meeting this week and is not expected to take any action, though it is likely to acknowledge improvement in the economy. It is also not expected to discuss a timetable of paring back its bond purchases. The Fed is buying at least $80 billion in Treasurys and $40 billion in mortgage-backed securities each month. Rieder, who is chief investment officer of global fixed income at BlackRock, expects the Fed tapering at the "earliest is October but probably closer to year-end." Fed Chairman Jerome Powell will hold a news briefing at the conclusion of the meeting Wednesday afternoon. Powell has said the central bank would taper its bond buying after it makes "substantial further progress" toward its goals. "I think at the press conference it will be interesting to hear what is further progress," Rieder said in an interview, adding that Powell should recognize that the data is "pretty incredible." "Chair Powell threw out the word that that the economy is at an inflection point. I don't think we're in the beginning of that inflection point," said Rieder, who also is head of the global allocation investment team. "I think we're well on the way." He said retail sales are ahead of pre-pandemic levels and home sales are up sharply. Rieder expects interest rates to move moderately higher, after the jump in yields earlier this year. "They should taper down the amount of purchases on the front end of the curve, and keep the long end," he said. "That way rates won't move higher at all. Rates will gently elevate." He said the 10-year yield, at 1.58% on Tuesday, should move toward 2% this year. "That's not disruptive. In a way, that's very healthy for market," he said. Holding cash, waiting for moment Rieder said he has an unusually high amount of cash in his portfolios, and is waiting for Treasurys and agency debt to get cheaper. Yields move higher when prices decline. "I think the Fed will begin to taper down the asset purchases and the knee-jerk reaction by the market is going to cheapen them up," Rieder said. He said the cash levels are in the low-to-mid-teens percent of portfolios. "It's about as high as we've run." Rieder said he'd be a buyer if the 10-year yield was in the high 1% or closer to 2%. "We'll wait until there's more value," he said.

Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, speaks during a Reuters investment summit in New York, November 7, 2019.

Lucas Jackson | Reuters

That is ahead of the view of some others on Wall Street, who expect the Fed to pare back bond purchases early next year. Fed economists do agree that the central bank could begin discussing cutting back on its quantitative easing program, or asset purchases, as soon as its June meeting.

The Fed is meeting this week and is not expected to take any action, though it is likely to acknowledge improvement in the economy. It is also not expected to discuss a timetable of paring back its bond purchases.