Many on Wall Street have been warning of a recession for more than a year now. But there’s no reason a country like the US even needs to experience an economic downturn, according to BlackRock Inc.’s Rick Rieder.
(Bloomberg) — Many on Wall Street have been warning of a recession for more than a year now. But there’s no reason a country like the US even needs to experience an economic downturn, according to BlackRock Inc.’s Rick Rieder.
“I just think a recession is grossly overstated as a phenomenon today without some massive shock to the system,” Rieder, the firm’s chief investment officer of global fixed income, said on the What Goes Up podcast. “When you have a consumer-oriented, service-oriented economy, it’s much more stable than people give credit to.”
BlackRock manages about $2.7 trillion in fixed-income assets for its clients.
Here are some highlights of the conversation, which have been condensed and edited for clarity. Click here to listen to the full podcast, or subscribe on Apple Podcasts or wherever you listen.
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Q: Do you think we’re out of crisis mode when it comes to inflation?
A: There’s a lot of academic thought about when you’re well above 3% that you entrench inflationary expectations in people, and it’s hard to get out from under that. When you get to 3%, you are at a place where you’re close enough to target and it’s not that scary a piece of data, and monetary policy doesn’t have to be that concerned about it. You’ll see inflation continue to come down. I’m much more confident that inflation is going to come down than I am that the unemployment rate is going to come up. I don’t think the Fed needs to destroy the employment paradigm today. In fact, I think it does more harm than good to try and bring that inflation down. I think there’s a natural migration lower. And once you reach these levels, patience is a virtue. Just let patience, just let time and a restrictive interest rate do its work. And I think you’ll find that it’ll approach target over time.
Q: What do you see as the Fed’s future hiking path?
A: Goods inflation, we’re getting to target. But in services, we’re not going to get there this year. Could you get there next year? Don’t know. But I think you can get close and certainly within spitting distance and certainly to a place that you feel comfortable with. Even with today’s better data, you have to marry yourself to the idea that the Fed’s going to hike in July.
I think they’re going to still try and get another hike done, probably November. But it’s ambiguous now as to are you going to do any more hikes? And quite frankly, these rates are restrictive. Real rates at these levels, these are restrictive levels — let them marinate through the system. You see the impact it has on the banking system. You see the impact it has on commercial real-estate. Let it marinate and it’ll do its work.
Q: We’ve already seen a lot of recession calls for 2023 get pushed into 2024. But if we don’t get a recession, how do you invest along that?
A: One of the beautiful things today in investing is you can own front-end yielding assets. I bought some commercial paper the other day at 6.5% — one-year CP, 6.5%. It’s like, I just want to go home at 6.5% and just sit.
But let’s say you ran a lot of carry, a lot of front-end yield in high-quality assets — investment-grade credit, maybe you go a little longer on some things like agency mortgages and then I’m going to own some of these equities — we assume that in the equity market, if companies can throw off 10%, 12% return on equity, you could generate a nice return in a portfolio and, quite frankly, more stable than you have historically because you’re getting a lot of carry from your fixed income — quality assets in fixed income.
Listen to the rest of the podcast here.
–With assistance from Stacey Wong.
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