BlackRock’s Rieder says Fed rate cut would tame inflation by tamping down services demand

BlackRock’s head of global fixed income says the Federal Reserve should cut interest rates to cool inflation as that would dampen demand in the services side of the world’s largest economy.

With benchmark rates lingering at their highest in more than two decades, affluent Americans are earning the most they have in years from fixed-income investments, Rick Rieder, BlackRock’s chief investment officer of global fixed income, said on Bloomberg’s “Wall Street Week” program.

“People who are middle to higher income are now getting a big benefit from these interest rates, and those are the people that spend, on aggregate, on services,” he said.

“Because goods prices have come down so much, it’s allowing for disposable income to go into services. That’s actually buoying prices in services,” Rieder said. The “price of a pair of tennis shoes is what it was 20 years ago. If you go to a tennis match, it’s double what it used to be,” he said.

Rieder said the Fed holding interest rates high is a “huge benefit” to people 55 years and older who have been saving money. “They’re turning around and spending,” he said.

Inflation is sticky in health and auto insurance and other services, Rieder said. “They’re unresponsive to interest rates and older people, middle to high income, are spending and are keeping that service level inflation at high levels.”

Rieder’s interview aired after the April inflation report release this week showed some moderation in prices, sending Treasury yields (US10Y)(US2Y) lower on ramped-up expectations for the Fed to start cutting rates this year.

“The worst fears were allayed,” by the April data, with prices for transportation services and rent coming down “encouraging,” he said.

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