The Federal Reserve could hike interest rates as many as four times this year, a move that markets are not sufficiently anticipating, BlackRock Inc’s chief investment officer of global fixed income said on Wednesday. “If the Fed does move in March, we could see as many as four hikes in 2017, and as long as data remains supportive, very likely three hikes,” Rick Rieder said in a note.
The Federal Reserve held interest rates steady earlier on Wednesday in its first meeting since President Donald Trump took office, while painting an upbeat picture of the US economy. But Rieder, whose New York-based employer is the world’s largest asset manager and a major bond investor, said markets have been slow to appreciate the tighter monetary policy that could come with a potential economic stimulus and faster economic growth under the new administration.
There are seven more Fed policy meetings in 2017, with the next one scheduled for March 14-15. Fed fund futures suggest there is a less-than-20 percent likelihood of a rate hike in March, but the odds are closer to 50 percent unless there is a major shock to the economy or economic data deteriorates, Rieder said. Wages and economic optimism are on the rise, he said. That could lead to four rate hikes and further discussions about whether, when and how to decrease the amount of assets held on the Fed’s balance sheet, according to Rieder.
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“This does present the possibility of policy risk, if interest rates were to increase too rapidly, or too much, and cut off the recovery in an abrupt manner,” he said. “Still, we think the US economy can withstand somewhat higher rates, and in fact we do expect rates to edge up further this year, but there are limits. The need to maintain the strength of the housing market, and the increased levels of both government and corporate sector leverage, would make any meaningful, or abrupt, move higher in rates from current levels somewhat concerning.”