As a seasoned researcher with over two decades of observing and analyzing economic trends, I find myself intrigued by Rick Rieder’s stance on the Federal Reserve’s monetary policy. His argument that service-based economies are resilient to interest rate adjustments and can handle further cuts without triggering inflation is an interesting perspective.
The U.S. economy has outperformed analyst predictions in September 2024, with a remarkable increase in job growth. As per CNBC’s report, nonfarm employment saw a significant jump of 254,000 jobs, exceeding the Dow Jones estimation of 150,000. Additionally, the unemployment rate dropped to 4.1%. However, despite this robust data, Rick Rieder, BlackRock’s Global Fixed Income Chief Investment Officer, suggested earlier today on Bloomberg TV that the Federal Reserve should carry on reducing interest rates.
In his interview, Rieder emphasized the robustness of the job market, calling the employment figures “truly remarkable.” He also pointed out the unexpected increase in job creation, decrease in unemployment rates, and improvements to earlier estimates. Nevertheless, Rieder maintained that the bigger economic picture, specifically the unique characteristics of the U.S. economy, warrant additional interest rate reductions, despite the encouraging jobs report.
As per Rieder’s assessment, the American economy predominantly relies on service industries like travel, recreation, healthcare, and education. These industries, he pointed out, are not significantly affected by changes in interest rates. He also expressed skepticism about the possibility of a hard economic downturn, stating that it is unlikely. According to Rieder, service-based economies do not experience cyclical slumps due to increases in interest rates as much as more interest-rate-sensitive sectors do.
Rieder noted that even though the Federal Reserve increased interest rates by 500 percentage points during the tightening phase, it didn’t produce as substantial an effect as anticipated. He underscored that this aggressive rate increase failed to achieve its intended goals on inflation or economic expansion, especially in service-oriented economies. Essentially, he argued that despite raising rates significantly, the Fed hasn’t seen a significant response, and suggested further lowering interest rates to better match current economic circumstances.
CNBC noted that wage growth surpassed predictions for September, with earnings increasing by 0.4% from August and 4% compared to last year. This information supports the idea that while job creation continues at a high rate, there may still be potential for inflation, but Rieder does not think this warrants delaying interest rate reductions. In his opinion, wage growth within the service sector is not an immediate cause for concern regarding inflation.
In his interview with Bloomberg, Rieder emphasized that the Federal Reserve might lower interest rates by a quarter of a percentage point in their upcoming meeting. He noted that although the economy is robust, numerous individuals heavily dependent on loans are still grappling with financial strain due to high-interest rates. Rieder believes that bringing down the federal funds rate to approximately 4% would alleviate this burden without causing excessive inflation. In his opinion, “I believe they will decrease it by 25, and I predict they will indeed do so,” indicating his expectation that the Fed will persist in reducing interest rates.
The CNBC report indicates that job growth was notably robust within service industries during September, with fields such as food services (restaurants and bars), healthcare, and government experiencing substantial increases in employment numbers. Rieder’s perspective mirrors this trend, suggesting these sectors possess a high level of resilience against interest rate fluctuations and can withstand additional reductions without causing inflation to spike.
Based on a report by CNBC, the futures market’s predictions have changed following the release of September’s employment data. Now, traders are suggesting a strong likelihood of the Federal Reserve making back-to-back small interest rate reductions in November and December. Although there has been some disagreement regarding the speed of future cuts, Fed Chair Jerome Powell recently acknowledged that the job market remains robust but has noticeably slowed down over the past year.
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2024-10-04 19:15