The Federal Reserve voted Wednesday to raise interest rates by 0.75%, or 75 basis points, the most since 1994.
In response, stocks rallied on Wednesday before a sharp sell-off Thursday. When the dust settled, the S&P 500 fell 5.8% this week, the most in a single week since March 2020 as the benchmark index entered a bear market.
And while the Fed’s actions continue to pressure financial markets, but BlackRock’s Chief Investment Officer of Global Fixed Income Rick Rieder has faith the Fed’s move on Wednesday was the right one.
“I think the Fed is right,” Rieder told Yahoo Finance Live on Thursday. “If you think about where monetary conditions are today? We’re still at easy conditions,” Rieder added. “By the end of the year, we’ve got to start to get to neutral.”
Chairman Jerome Powell told reporters at a press conference Wednesday that the Fed “is not trying to induce a recession” by raising rates aggressively, though the central bank’s forecasts suggest slowing growth and rising unemployment in the years ahead.
In a note to clients on Wednesday, Rieder alluded to volatile supply conditions — like those exacerbated by the ongoing Russia-Ukraine war — that make it more difficult for the Fed to tame inflation. Moreover, BlackRock’s Investment Institute sees a worsening market outlook in 2022.
All of these concerns warrant the Fed’s hawkish stance, in Rieder’s view.
“You have to get to neutral before you go in either direction,” Rieder explained, using an anology of driving a car and suggesting that the Fed hiking interest rates aggressively is the way to reach neutral. “You don’t want to put the emergency brake on — meaning you want to gradually do it. You want to tap on the brakes. I think [the Fed was] too slow in doing that. Now they’re moving and I think they’re doing the right thing.”
Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22
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