Why BlackRock's Investment Guru Expects The Fed To Stay Aggressive Despite Market Bounce

BlackRock Inc BLK Chief Investment Officer Rick Rieder says the firm believes the Fed will raise rates by another 75-basis points in its September Federal Open Market Committee (FOMC) meeting: here’s why.

The Data: The Labor Department issued its July consumer price index (CPI) data on Wednesday that showed topline inflation, as measured by the CPI, was flat. It did not grow or decrease month over month, translating to an 8.5% gain year over year.

The all-items index for July 2022 was unchanged from the previous month, but it remained 8.5% on an annualized basis. While 8.5% inflation remains high, there are hints of a cooling — inflation declined from a 41-year high of 9.1% last month.

Read more: BlackRock Says There Is No 'Soft-Landing': Central Banks Will Have To Plunge Economy Into A Deep Recession To Stop Inflation

The Why: High inflation, coupled with last week’s labor market data which widely beat consensus estimates, along with solid wage gains puts Fed policymakers “firmly on the path toward continuation of aggressive tightening,” Rieder wrote on Twitter Wednesday.

“Over time, we think the slowdown in economic growth, the continuation of the Federal Reserve’s assertive hiking cycle and the possibility of resolution with several persistent supply chain issues should influence broad inflation lower.” Rieder continued.

The FOMC voted to increase the fed funds rate by 75-basis points at its meeting in late July. The new target range for fed funds is 2.25% to 2.50%. If the committee decides on another substantial rate hike, it would set the target range between 3% and 3.25%, which is “likely just beyond the ‘neutral rate,’ and begins the journey into more restrictive territory,” Rieder said.

Rieder warned if the Fed raises rates too aggressively, the wage gains seen in lower-income households in recent years that has helped them contend with inflationary pressures would dissipate: “We would think that this will be top-of-mind for policymakers as policy moves deeper into restrictive territory.”