There’s a good possibility the U.S. Federal Reserve will cut interest rates 50 basis points at its next meeting, according to Rick Rieder, the global CIO of fixed income at BlackRock.
Rieder told Yahoo Finance’s On the Move most analysts expect a 25 basis point cut in interest rates when the FOMC meets at the end of the month. But he said to truly make a difference, the Fed should consider the more aggressive cut in rates.
“When you’re cutting rates, you actually do want to shock the system,” he said. “If the Fed wants to say we’re going to promote a global expansion or continue the expansion in the U.S., then arguably go 50 and then say, you know what, we’ve done what we need to do.”
Last week, Fed Chair Jay Powell testified before Congress and said, “based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
Powell’s testimony is one reason Rieder expects a rate cut even though he’s not sure the Fed needs to because the U.S. economy is doing pretty well — unemployment rate is low and the U.S. is still below the inflation target.
But “when you think about what’s happening in the rest of the world, the Fed now almost has to set interest rate policy for the rest of the world, because the other central banks have run out of tools,” he said.
With interest rates in the U.S. still in a range of 2.25% to 2.50%, Rieder said there is room to cut. Rieder said cutting interest rates won’t handcuff the Fed should the U.S. economy falter. He said the Fed could once again buy assets and grow its balance sheet.
“We’ve argued that with the central bank issue, particularly the Fed, keep rates at about 2% and leave it there for a long time,” he said.
Rieder said keeping rates in the U.S. stable for a long period of time would have positive effect on the economy because companies could make long-term financial decisions.
Adam Shapiro is co-anchor of Yahoo Finance On the Move.