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BlackRock 2024 outlook views Fed rate cuts to be 'overdone'

BlackRock (BLK) released its 2024 outlook, avoiding concrete predictions on potential Fed rate cuts despite recent market moves betting on easing monetary policy. With analysts divided on whether the Fed engineers a soft landing or the economy ultimately heads into a recession, BlackRock states that post-pandemic data has not shown reliability for confident projections.

Against this backdrop of uncertainty, Yahoo Finance’s Josh Schafer analyzes BlackRock’s perspectives, providing insights into its cautious tone on the trajectory of inflation heading into the new year.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: BlackRock releasing its 2024 outlook today. Our Josh Schafer attended the media roundtable to learn more about the asset management giant's views for the year ahead. He's joining us. Now, and I mentioned asset management giant because, I mean, this is an enormous money manager, manages billions in ETFs also. So when they give their outlook, it influences a lot of flows.

JOSH SCHAFER: It definitely does. And I think two things really stuck out to me here, guys, from what they had to say. One, specifically about the Fed and really the market moves we've seen over the last month. Their global chief investment strategist, Wei Li, saying that she thinks that the moves have been really aggressive, the move for Fed rate cuts that we've seen in the last month. Essentially saying that they've been overdone, and they've sort of gone too far.

And I think it goes with the other major point that they had, which is they didn't take a hard stance on a hard or soft landing. We've been talking a lot about 2024 outlooks, right? And we've been talking a lot about, well, these people are in this soft landing camp, and these people in this hard landing camp. And we're going to go into a recession, or we're not going to go into a recession.

BlackRock was very careful to say they don't really feel that that's what matters and also pointing out that the data hasn't been that consistent, right? In this post pandemic era, it has not been easy to look at data and determine what will happen in 6 to 12 months. And they essentially said, we don't think Fed officials should be able to decide what's going to happen in 6 to 12 months. So they think those cuts have been sort of overdone. Jared, I know talking to you before this--

JARED BLIKRE: Yes

JOSH SCHAFER: --you had sort of been waiting for someone to say that, right, rather than being in a hard camp?

JARED BLIKRE: Yeah. Let's go to the Wi-Fi interactive because, of course, I have a handy dandy chart to--

JULIE HYMAN: Of course, you do.

JARED BLIKRE: This is the number of rate cuts that were priced in this purple line in-- on October 31. And so horizontally, the x-axis, this goes from January 24 to January of 25. And you can see we had about 2 plus just a little bit over that priced in as of October 31 into the first month of January 2025. So that's 13, 14 months away. Now, look at this. More rate cuts, and we're talking about four or five. Four rate cuts by the way is 1%, 100 basis points, and that is a huge move.

But I would say when the Fed starts cutting rates, it usually starts out that way because things are bad. What people are betting on now is that things are going to stay good somehow, and we're not going to fall off that cliff. But what kinds of reactions were people giving with regard to-- to their expectation of rate cuts?

JOSH SCHAFER: Yeah. I think it gets back to the graph that we had up before, Jared, right? With just the traditional Fed funds upward bound target, right, in that rate. And you see that little shaded area we always show, right? Always shows a recession, right? Right around when those cuts come. And I think that's what-- as Jared was saying, that gets to that big cut.

JARED BLIKRE: Yes.

JOSH SCHAFER: And I don't think enough people are thinking about, Julie, what happens if we have that unspectacular growth that some are saying.

JULIE HYMAN: Right.

JOSH SCHAFER: And then you don't get a cut. BlackRock's call is for a cut in Q3, which is later than a lot of people. So they're not saying we're going to see this big, you know, destructive moment in the start of the year that would give us cuts in a recession.

JULIE HYMAN: I mean the bias of history is strong, right?

JOSH SCHAFER: Yeah.

JULIE HYMAN: And so--

JARED BLIKRE: The Fed did it once. They got the soft landing once in 1995, arguably, maybe another time. But the balance of history, the weight of the evidence points to a hard landing. But we'll have to see.

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