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Federal Reserve Likely to Raise Interest Rates in December: BlackRock's Rieder

( [email protected] ) Sep 18, 2015 01:57 PM EDT
The Federal Reserve will likely raise U.S. interest rates at its December policy meeting, Rick Rieder, chief investment officer of global fixed income at BlackRock said on Friday, adding that even a year-end hike was not a sure thing.
A woman walks past the Federal Reserve headquarters in Washington September 16, 2015. REUTERS/Kevin Lamarque

NEW YORK - The Federal Reserve will likely raise U.S. interest rates at its December policy meeting, Rick Rieder, chief investment officer of global fixed income at BlackRock said on Friday, adding that even a year-end hike was not a sure thing.

"I think October is off the table," Rieder told Reuters at BlackRock's New York office Friday morning, after it decided to stick to its near-zero rate policy on Thursday.

He noted that there will not be enough data released by the Fed's October 27-28 meeting to warrant a change.

As a result of the ongoing uncertainty and volatility caused by the Fed announcement, BlackRock sees opportunities in short-term Treasuries and investment grade credit.

"I had thought that investment grade credit had very limited value for the past few years, but some of these spread levels are very attractive right now," Rieder said.

BlackRock, the world's largest money manager with $4.7 trillion in assets, is adding investment grade corporate credit, particularly in the industrial sector, where it is seeing increased supply, Rieder said.

Rieder believes that even a December rate hike may be questionable because of year-end factors like the holiday season, when consumption is higher, Rieder said.

The futures market implied traders see only a 14 percent chance of a Fed rate hike in October and 42 percent chance in December, according to CME's FedWatch program.

Going into Thursday, Rieder thought there was a 50-50 chance that the Fed would raise rates.

"My head told me yes, but my gut told me 'no," he said.

While he was not surprised by the Fed announcement, Rieder said he was surprised that the Fed did not leave more room for rate increase in October.

"Chairwoman Yellen did say October is live but I think they didn't give a lot of reason why October could really happen and that part was surprising," Rieder said.

While Rieder applauded the Fed's transparency overall, he said it would be helpful to the markets if the agency would be more specific about what series of metrics it looks at, whether it be the jobless rate or apartment rental vacancies rate.

"If they laid out a series of indicators, that were not definitive, but gave you a sense... that this is the algorithm that is part of the thought process, it would be helpful," he said. "I don't think the Fed would have to be held to it."