50 Basis Point Rate Cut on the Table Next Week as US Enters New ‘Economic Paradigm,’ Says BlackRock CIO Rick Rieder

BlackRock’s Rick Rieder thinks the U.S. Federal Reserve could orchestrate a larger rate cut next week than most prognosticators expect.

Rieder, the financial giant’s chief investment officer (CIO) of global fixed income, acknowledges that the recent Consumer Price Index (CPI) report suggests inflation is ticking up, but he doesn’t think it will impact the Fed’s decision-making.

“Inflation data today came in on the firmer side, with core CPI (excluding the more volatile food and energy components) increasing by 0.35% month-over-month and 3.11% year-over-year as of August, which modestly exceeded economists’ consensus estimates.

Further, headline CPI increased by 0.38% on a month-over-month basis and 2.92% year-over-year, amid a rebound in food and energy prices.

There are many crosscurrents affecting inflation data these days, including temporary factors like tariffs, which are finally impacting these numbers in a more meaningful way. Still, we view tariff price increases as a one-off factor and they should come down over time, as businesses and consumers adapt.”

Rieder says the US is entering a different “economic paradigm” centered on productivity, which he thinks will present a downside risk to labor markets, an upside influence on growth and a downside pressure on inflation.

“The fact is that productivity, technology, and innovation are changing the historic calculus of growth versus employment in the United States today, and productivity is taking a front seat.

For example, we think artificial intelligence and automation may be enabling companies to deliver stronger performance while maintaining a stable workforce, which reflects significant efficiency gains and marks the beginning of a new era in workforce productivity.

Thus far, this dynamic hasn’t involved mass layoffs to any significant extent, but the recent moderation in the labor market (and substantial anticipated downward revisions to prior data) do suggest that employment faces significant headwinds to growth and vulnerabilities in the years ahead.

As a result, we believe that the Federal Reserve’s forward focus (maybe for the next few years) is likely to be achieving maximum employment – even if the economy does well in aggregate.”

The CME FedWatch Tool, which generates probabilities using the 30-day Fed Funds futures prices,  estimates there is only a 3.6% chance the Fed will cut the federal funds target rate by 50 basis points at the upcoming FOMC meeting. The tool estimates there’s a 96.4% chance the Fed will cut the rate by 25 points.

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