BlackRock's Rieder says Fed will tighten policy, so investors need to be conservative for now

Published Tue, Jan 25 202212:48 PM ESTUpdated Tue, Jan 25 20222:32 PM EST

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

BlackRock bond chief Rick Rieder said financial conditions have tightened more quickly than expected, so Federal Reserve Chair Jerome Powell could take a more cautious tone even as he pushes toward raising interest rates. Stocks plummeted as the Fed began its two-day meeting Tuesday. Since the start of this year, the stock market has become extremely volatile, with the Nasdaq Composite down more than 14.5% and the S & P 500 off 11.4%. "I think the Fed was comfortable seeing financial conditions tighten a bit from what was extraordinarily easy levels, but I think a bit of tightening of financial conditions has moved much faster than anybody would have thought," said Rieder, chief investment officer of global fixed income for BlackRock, the investing behemoth that manages $9.5 trillion for clients. The central bank's Federal Open Market Committee is scheduled to release its post-meeting statement Wednesday at 2 p.m. Powell will brief the media a half-hour later. The statement is expected to signal the Fed is ready to begin raising short-term interest rates from near-zero, possibly as early as March. The Fed is also expected to remain on course to end its bond purchases , or quantitative easing, in the next two months. Rieder expects Powell also to be asked about the Fed's intention to shrink its balance sheet, but does not expect to hear much detail. "I think he's going to be dovish relative to expectations, and I think they'll be very clear about meeting the conditions to ending the quantitative easing, finally. And he'll say we're ready to start raising rates away from emergency conditions, more to a normalized set of monetary policy," Rieder said in an interview. As for his investing view, Rieder said it's a time to be conservative for the next couple of months while the markets adjust to the Fed and investors get a better view of whether the economy is hitting a softer patch. He described the market's retracement as "severe" and that there is a high lack of conviction among investors. "I think the market will take some comfort in a Fed that is interpreting the data, adjusting policy but not panicked about policy," he said. "There is the risk and the concern among most market participants that they feel like they've got to be more aggressive .. .and they're way behind the curve." He expects the market to remain volatile for now. "When you tighten, you need to land the plane softly. Landing the plane softly is not dropping it out of the sky, hitting the brakes and putting it in reverse," he said. "If they started earlier, they could have landed the plane a little easier." As for investors, they need to remain cautious. "I think now you still have to be deliberate," Rieder said. "I don't want to be aggressive. Investors are realizing today I think the right paradigm is to be conservative in your portfolio positioning and [quan