Most of Federal Reserve Chair Jerome Powell\u2019s messaging to markets on Wednesday may lean toward hawkish monetary policy, but that might not keep a lid on stock prices for very long after any potential pullback, according to BlackRock\u2019s Rick Rieder.\u00a0<\/p>\n
\u201cI think the stock market is anticipating he\u2019s going to be hawkish on inflation,\u201d said Rieder, BlackRock\u2019s chief investment officer of global fixed income and head of the firm\u2019s global allocation investment team, in a phone interview. He\u2019s probably \u201cgoing to continue to pound the table that inflation is their number one objective today.\u201d <\/p>\n
\n
The Fed is widely expected to announce on Wednesday that it\u2019s raising its benchmark interest rate by a quarter percentage point to a target range of 5.25% to 5.5%, in an effort to lower elevated inflation. Investors will be listening closely for how Powell speaks to the balance of risks involved in tightening the Fed\u2019s monetary policy to rein in the rising cost of living in the U.S. to its 2% target, according to Rieder. <\/p>\n
While many investors have long feared the Fed risks triggering a recession after embarking early last year on an aggressive interest-rate-hiking campaign, the U.S. economy has been so far resilient.<\/p>\n
To Rieder\u2019s thinking, \u201ctheir policy has been restrictive enough for a while now.\u201d He said that\u00a0 \u201conce you got above 4%, you started to move towards a restrictive rate.\u201d<\/p>\n
The Fed has slowed its rate hikes this year after rapidly lifting them in 2022. Now investors will be focused on whether Powell thinks another rate hike this year may be needed after July, as well as the Fed Chair\u2019s description of the pace of getting to another potential rate rise later in 2023, according to Rieder.\u00a0<\/p>\n
Powell may lean hawkish in indicating that a rate increase could be on the table at the Fed\u2019s September meeting, said Rieder, whose base case is that, after the anticipated hike in July, the Fed may pause before potentially lifting rates again in November.<\/p>\n
Meanwhile, the surge in the cost of living in the U.S. has been easing.\u00a0<\/p>\n
\u201cThe trend is clearly in favor of lower inflation,\u201d but the question is whether it has come down enough to alter Powell\u2019s perspective on continuing with further rate hikes, said Rieder. He raised concerns over pressure from rate increases on the banking system and commercial real estate, as well as the labor market.\u00a0<\/p>\n
The labor market has been \u201cvery strong\u201d amid a structural lack of available workers for the jobs open to be filled in some areas, said Rieder, questioning why the central bank would want to weaken it when inflation is already coming down as past rate hikes work with a lag through the system. <\/p>\n
Full employment is one of the Fed\u2019s dual mandates, said Rieder, along with price stability in the economy. In his view, inflation, which had spiked because of a \u201cmassive supply shock\u201d during the pandemic, may continue to come down if the Fed patiently waits for its past rate increases to \u201cmarinate through the system.\u201d \u00a0<\/p>\n
Rieder will also be looking for any signs of \u201cpatience\u201d from the Fed after Wednesday\u2019s meeting concludes, as he worries the central bank\u2019s rate increases have already reached a restrictive level.<\/p>\n
Other market experts have expressed worry in recent months over the damage the Fed\u2019s continued rate hikes could inflict on the economy.\u00a0<\/p>\n
For example, Edward Yardeni, president of Yardeni Research, told MarketWatch in May that \u201cthe last two rate hikes were nuts\u201d after the Fed\u2019s rate increase that month. And Campbell Harvey, director of research at Research Affiliates, said in a June interview with MarketWatch that\u00a0 the U.S. may be in \u201cthe lull before the storm\u201d while expressing worry that the Fed\u2019s continued rate hikes this year raised the odds of a \u201chard landing\u201d for the economy.<\/p>\n
While Powell probably will have \u201cinflation as the bull\u2019s-eye of where policy is going to go for the foreseeable future,\u201d said Rieder, the stock market currently has a \u201ctremendous\u201d technical backdrop. He pointed to the trillions of dollars sitting in money market funds as many people have been bearish about equities even as the market has jumped this year amid stock buybacks and a light calendar for initial public offerings.<\/p>\n
While Big Tech stocks have driven the S&P 500\u2019s gains this year, Rieder says many equities are trading at \u201creasonable\u201d valuations. He said airlines, autos, homebuilders and healthcare are among the areas of the stock market that he likes.\u00a0<\/p>\n
Investors have the opportunity to own high-quality assets in the bond market with very short durations to get some yield, while buying some equities for \u201cupside,\u201d according to Rieder.\u00a0\u201cThat\u2019s much more attractive than owning a lot of long maturity bonds,\u201d he said. <\/p>\n
The stock market could continue to \u201cgrind higher\u201d from here barring some exogenous event, said Rieder, although, after a \u201cpretty good run\u201d in the past couple of weeks, equities could \u201cback off a bit\u201d for a day or so on Powell potentially sounding hawkish on inflation.\u00a0\u00a0<\/p>\n
U.S. stocks closed higher on Tuesday, with the S&P 500
\n SPX,
\n -0.02%<\/bg-quote>
\n finishing at 4,567.46, or off 4.8% from its record close on Jan. 3, 2022, according to Dow Jones Market Data.\u00a0<\/p>\nRead:<\/strong> As tech stocks skyrocket, here are the S&P 500\u2019s best and worst sectors for profit margins<\/p>\nIn the bond market, the yield on the 10-year Treasury note
\n TMUBMUSD10Y,
\n 3.864%<\/bg-quote>
\n was down about four basis points at 3.87% on Wednesday morning as investors awaited the Fed\u2019s decision on interest rates. Yields on longer-dated 30-year bonds
\n TMUBMUSD30Y,
\n 3.938%<\/bg-quote>
\n were trading three basis points lower at around 3.92%, while two-year Treasury yields
\n TMUBMUSD02Y,
\n 4.870%<\/bg-quote>
\n fell about three basis points to 4.87%, FactSet data show, at last check.\u00a0<\/p>\nTraders in the federal-funds-futures market on Wednesday morning were expecting the Fed to raise its benchmark rate by a quarter percentage point, with the central bank\u2019s announcement on its policy decision scheduled to be released at 2 p.m. Eastern Time. Powell is expected to hold a press conference at 2:30 p.m.<\/p>\n
Fed-funds futures were pointing to a roughly 79% chance of the Fed pausing its rate increases at its September meeting, potentially keeping them at the 5.25% to 5.5% level they\u2019d reach after the anticipated July hike, according to the CME FedWatch Tool, at last check.<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Most of Federal Reserve Chair Jerome Powell\u2019s messaging to markets on Wednesday may lean toward hawkish monetary policy, but that might not keep a lid on stock prices for very long after any potential pullback, according to BlackRock\u2019s Rick Rieder.\u00a0 \u201cI think the stock market is anticipating he\u2019s going to be hawkish on inflation,\u201d said […]<\/p>\n","protected":false},"author":1,"featured_media":40710,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-40895","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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