- The world's biggest asset manager said the Federal Reserve won't be raise rates as much as the market expects.
- BlackRock's Thomas Taw said the Fed will soften its approach once inflation starts declining.
- The Fed raised rates by 25bps in March with markets pricing in a further 50bps hike as it tackles record inflation.
BlackRock said the Federal Reserve will not hike interest rates as aggressively as the market expects, with the central bank tightening monetary policy to tackle inflation.
"We are in a tightening dynamic, we are in a tightening period, but I don't think it's going to be as aggressive as what the market is pricing in at the moment, which is very, very aggressive," BlackRock's Head of APAC iShares Investment Strategy Thomas Taw said in a Bloomberg interview on Monday.
The Fed raised interest rates in March for the first time since 2018, taking a big step to tame inflation at its highest for 40 years in the US, and planned a series of six more hikes this year. Markets are pricing in expectations for a 50-basis point hike from the Fed's next meeting in May and possibly more at subsequent meetings.
Futures markets show investors believe US rates could be as high as 2.75% by the end of this year, compared with 0.5% right now.
But BlackRock doesn't see the Fed hiking rates that aggressively.
"The Fed will be aggressive in the beginning, but I think they'll start to hold off in terms of being super aggressive with 50bps rate hikes into the end of the year," Taw said.
Taw said the Fed would slow down as inflation cools.
"We might see some aggressive action over the next few months but I think once inflation eventually starts to curtail then the Fed will pull back a little bit in terms of how aggressive they're moving into the future," Taw said.
A 50bps rate hike will be a first for the Fed in 20 years, as the central bank has not raised interest rates by that much since 2000. The Fed has said it will cut its balance sheet and wind down its asset buying as well. Some analysts are worried the Fed's policymakers could tip the US into a recession as they tighten monetary policy.
Economist Mohamed El Erian said a series of 50bps hikes would likely be an even bigger policy mistake than misjudging inflation, as the Fed might risk pushing the economy into a recession. He has said the Fed making a policy mistake is highly probable.
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