Episode summary
Rick Rieder: Inflation Isn’t the Biggest Risk for Markets
Wall Street Week
· · 9 min · Guests: Rick Rieder
Summary
Rick Rieder argued that the latest CPI report was a relief for markets because it did not come in hot, but inflation is still above the Fed’s 2% goal. He said the economy is now “in the ballpark,” with core inflation trends improving enough that he is not worried it will be the factor that disrupts markets. At the same time, he emphasized that the Fed’s task is to reach 2% over the long run, not necessarily through immediate rate hikes.
His bigger concern is the long end of the yield curve. Rieder said fiscal deficits, heavy Treasury issuance and the financing needs tied to A.I. are pushing real rates higher, which could keep long-dated yields under pressure even if short-rate policy stays unchanged. He argued the Fed has more tools than the overnight funds rate, including the balance sheet and money supply, and that forward guidance should be used more carefully.
Rieder also described fixed income as attractive because investors can earn high income without stretching for risk. He said his portfolio is built to be stable and diversified, with exposure to high yield, emerging markets and securitized assets, while noting that today’s high real rates make corporate investing more attractive.
Key takeaways
- Rieder said the CPI print was a “collective industry-wide sigh of relief,” but inflation is still above target.
- He expects Core PCE around 2.8 by year-end and 2.5 next year, while Core CPI is already running lower.
- Rieder thinks raising the overnight funds rate is “not terribly effective” for bringing inflation down compared with other Fed tools.
- He sees fiscal deficits and $673 billion of U.S. Treasury issuance as drivers of higher real rates.
- Rieder said investors can now earn about a 6.80% yield in a portfolio with an average rating of A minus and under 3 years of rate exposure.
Notable quotes
“markets have been more nervous about this number and I would think there was a collective industry-wide sigh of relief when this number came out”
“You're in the ballpark today”
“Raising the overnight funds rate, in my mind, is not terribly effective way to bring that number down”
“there was 673 billion of U.S. treasury debt. You know, it's like issuing Indonesia in a week”
“you can create almost a 7 percent yield. So we're running about a 6.80 yield at an average rating of A minus”
How the episode opens
We start with the bond market caught between fears of inflation and long term fiscal risks. Rick Rieder is BlackRock's chief investment officer of global fixed income and head of the global allocation investment team. Rick, we got CPI numbers this week and there was good news in the fact that they're not going up.
On the other hand, it's not 2.0 the way we've been promised. So which is more important, the good news or the bad news? -Well, I will say markets have been more nervous about this number and I would think there was a collective industry-wide sigh of relief when this number came out because it wasn't, you know, this is one of those numbers if it comes in high, then all of a sudden now you put the Fed in clear hiking mode and you're starting to see consistent numbers, so if you go back into the last 10 numbers that we've gotten in core CPI, 8 of the 10 have been .2 rounded or below that.
So it's still a bit elevated relative to where the Fed's long term objective is. But I think the markets felt pretty good about "We got through it and it wasn't that high. And then if you go through the component parts, although it was a number pretty close to expectations in almost every regard, you are seeing still things like lodging away from home, hotel, airlines, you're seeing in leisure experiences, think about the World Cup effect and otherwise, you're still seeing some pricing pressure around that.
But, overall, I would say it was an OK number. But, yeah, we're not, certainly not at target yet. Westin: So pull back a little bit and give us a longer term view over the years of how it's bounced around and where we are today compared to where we've been.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- cpi inflation
- fed 2% target
- yield curve long end
- treasury issuance
- ai financing and real rates
Companies and tickers mentioned
- BLK
- BlackRock
Watch the episode
Watch “Rick Rieder: Inflation Isn’t the Biggest Risk for Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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