BlackRock: The economy is slowing down, the Fed may not need to raise interest rates

The Fed over the past year has embarked on one of the most aggressive rate hike cycles in decades

New York ( – The Federal Reserve may not need to raise interest rates further to fight inflation, as the impact of last month’s turmoil on the banking sector and a recent spate of employment data point to a slowdown in the US economy, a BlackRock executive said Monday ( 10/4/2023).

Although Friday’s Labor Department employment report (7/4/2023) showed that US employers maintained a strong hiring pace last month, it was also marked by a slowdown in wage gains and job growth that was below the three, six and 12 month moving averages , says Rick Rieder, global head of fixed income investment at BlackRock, the world’s largest asset manager.

The data, along with labor market figures released last week and expectations of tighter credit conditions after the failures of two US banks last month, paint a picture of a slowing economy, according to Rieder.

“Last Friday’s (7/4/2023) employment report, while certainly not alarming by any means, allowed investors to see more clearly through what should have been a much slower course of economic conditions,” Rieder wrote in a report.

“Presumably, this will also see a halt to the Fed’s policy rate hike after one more likely hike at the May meeting, although it is also possible the Fed has already done so,” he added in an emailed statement to Reuters.

The Fed has over the past year embarked on one of its most aggressive rate hike cycles in decades to curb price pressures and expects borrowing costs to remain around current levels through the end of 2023.

For now, traders are taking a more discrete view dovish and predicting policy makers will not cut interest rates later in the year, bringing the Fed’s funds rate to 4.35 percent from a current range of 4.75 percent to 5.0 percent.

Investors will be closely watching the inflation report on Wednesday (12/4/2023) to gauge the near-term trajectory for interest rates.

According to Rieder, inflation will subside going forward, in line with the economic slowdown seen last month. “Hopefully… the market can look forward to a more relaxed Fed from here on out,” he said, quoted by Reuters.

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Translator: Apep Suhendar
Editor: Click Dewanto


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