Anticipating "March rate hike too early"! What does the world's largest asset management think?

On the early morning of February 1st, the Federal Reserve announced the decision of its January interest rate meeting. Powell stated that a rate cut in March is unlikely and more evidence is needed to prove that inflation has been contained.

In a phone interview prior to the interest rate meeting, Rick Rieder, Chief Investment Officer of the world's largest asset management firm BlackRock, made a prediction about the "rate hike in March" argument: it's too early.

His judgment seems to be correct at the moment.

Rieder's previous views were based on several key factors. In terms of economic fundamentals, Rieder pointed out that economic growth, labor market conditions, inflation levels, and other macroeconomic indicators show that the US economy remains resilient, with a 3.3% year-on-year growth rate in GDP in the fourth quarter. In addition, retail sales and employment conditions also indicate strong consumer demand, and inflation remains robust.

In terms of inflation, Rieder believes that although the Federal Reserve has an open attitude towards rate cuts, the urgency for rate cuts is not high. The Federal Reserve may want to observe several more months of inflation data and find more reasons for economic cooling. Given the resilience of the economy and inflation above the target of 2%, it is reasonable for the Federal Reserve to remain patient in terms of rate cuts.

In terms of interest rate path, Rieder predicts that the Federal Reserve may start cutting rates by 25 basis points at every other meeting starting from May. This is contrary to the expectations of Goldman Sachs economist David Mericle, who expects the Federal Reserve to start cutting rates in March and cut a total of 5 times by 2024. Of course, Goldman Sachs, which was "slapped in the face," overnight postponed its expectations for the first rate cut of this round. In the latest report, analysts including Jan Hatzius from Goldman Sachs have revised their expectations for the timing of the first rate cut by the Federal Reserve from March to May.

In terms of balance sheet reduction, Rieder stated that he will also pay attention to any discussions about the Federal Reserve possibly slowing down its quantitative tightening (QT) pace in the second quarter. Under the QT policy, the Federal Reserve reduces its balance sheet by reducing Treasury securities and agency mortgage-backed securities on its balance sheet.

In terms of the bond market, Rieder described the current 10-year Treasury yield as "reasonable" and predicted that 2024 will be a year of decreasing interest rate volatility.