Blackrock says Federal Reserve rate cut should have been ‘bolder’
The world’s biggest investment firm Blackrock has criticised the Federal Reserve’s decision to cut interest rates by one notch, saying it “missed an opportunity for a bolder stance”.
Read more: US Federal Reserve cuts interest rates by a quarter point
Rick Rieder, chief investment officer of global fixed income at Blackrock, which manages $6.8 trillion (£5.4 trillion) of assets, suggested the Fed should have cut interest rates by 50 basis points (0.5 percentage points).
At its monetary policy meeting yesterday, the Fed cut interest rates by 25 basis points for the second meeting in a row, taking its target rate to between 1.75 and two per cent.
US President Donald Trump reacted angrily to the decision, however. He has repeatedly – and unprecedentedly – publicly called for deeper cuts.
He tweeted: “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
Now it seems Trump has an ally in investment giant Blackrock. Rieder said in a statement today that a deeper cut “might have provided greater insurance against international risks to the economy”.
“A bolder policy statement might have involved cutting policy rates by 50 basis points, but then suggesting that was all that was required at this point to make the mid-cycle adjustment and attempt to support the slowing manufacturing sector and job market.”
“This could have been more impactful, particularly when paired with a statement that if there was any tangible slowing that the Committee would aggressively cut rates again.”
The Fed has had a challenging week after a spike in borrowing costs in a vital short-term money market hit record highs, forcing it to loan over $100bn of cash to banks and firms.
Borrowing costs in the repurchasing – or repo – market soared to as high as 10 per cent on Tuesday morning, pushing the US’s main interest rate to above the Fed’s target level.
Rieder said: “This week’s dramatic moves in the short-term funding markets serve as a case in point for the need to carefully consider liquidity in the financial system.”
Read more: Fed injects over $100bn after key borrowing rate hits all-time high
He said “the answer to current economic and market stresses will be for the Fed to cut policy rates… and to permanently inject new/more liquidity into the financial system”.
(Image credit: Getty)