The Federal Reserve is expected to maintain its benchmark interest rate, currently at a 22-year high, in its policy statement set to be released today, Wednesday. The market widely anticipates this move, although an additional rate hike in November has not been ruled out as the Fed continues its efforts to combat persistently high inflation.
Since March 2022, the central bank has steadily increased its benchmark rate from near zero, resulting in a current target range of 5.25% to 5.5%. This strategy has been met with concerns about a potential deep recession, but Fed Chair Powell has aimed for a soft landing for the economy—slowing it enough to ease inflation without causing an economic downturn.
Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team, believes that the current measures taken by the central bank are sufficient. With signs of significant deceleration in inflation and slowing employment, he suggests further rate hikes may not be necessary.
Recent data shows U.S. economic growth moderating and inflation notably down from peak levels. Core consumer price index (CPI) data—excluding energy and food prices—has decreased to 2.4% on a three-month annualized basis from 6.9% in June 2022, aligning more closely with the Fed’s inflation target of 2%.
However, despite its resilience, the U.S. economy is showing vulnerabilities—job openings are decreasing significantly and consumers face increasing pressure as credit card debt grows and savings dwindle. This pressure is particularly intense for lower-income borrowers who are most affected by higher interest rates.
In the stock market, certain retailers are experiencing difficulties. Macy’s Inc. reported a loss and a decline in sales last month while discount retailer Dollar General Corp (NYSE:DG) was downgraded by JPMorgan Chase & Co. (NYSE:JPM) due to weaker-than-expected second-quarter earnings. Dollar General and Macy’s stocks have fallen 53.3% and 47.1% respectively this year.
The broader U.S. stock market has also seen a downturn this month, with the S&P 500 declining 1.4% in September as investors focus on Powell's upcoming press conference, scheduled for 2:30 p.m. Eastern Time today.
Rieder predicts that Powell will reemphasize the cautious approach of the central bank as it assesses economic data to determine the necessity of another rate hike.
Looking ahead, Rieder anticipates that the Fed may reduce rates in the latter half of next year and suggests that markets might have been overly optimistic about a rate cut in early 2024.
In terms of investment strategy, Rieder finds the short end of the Treasury market’s yield curve appealing but also advises gradual investment in the three-to-five-year part of the yield curve. Current yields on six-month Treasury bills are around 5.53%, while those on the 2-year Treasury note and 10-year Treasury yields stand at approximately 5.05% and 4.33%, respectively. Rieder suggests that locking in some longer-term yields today could be a sensible move if investors anticipate the Fed to cut rates next year.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.