Forget the rate cut: BlackRock's $1.9 trillion bond chief told us of a more significant bombshell the Fed just dropped on markets - and explained how investors can start profiting from it
- The Federal Reserve on Wednesday cut interest rates for the third time this year - and that wasn't the biggest news of the day according to Rick Rieder, the global chief investment officer of fixed income at BlackRock.
- In an exclusive interview with Business Insider, Rieder explained why the Fed's continued purchases of Treasury bills have more significant implications for investors.
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The Federal Reserve rarely shocks investors with its interest-rate decisions these days.
Wednesday's news was no exception: the Fed lowered its benchmark interest rate by 25 basis points, delivering its third rate cut since the financial crisis exactly as markets had priced in.
But you would be remiss to write this off as just another boring Fed day that was in line with expectations, according to Rick Rieder, the global chief investment officer of BlackRock's $1.9 trillion fixed income business.
Fed Chairman Jerome Powell dished the more momentous move of the day during his press conference, according to Rieder: He reassured investors that the central bank will continue stoking market liquidity amid widespread concerns that a global economic slowdown and recession would trigger a rout in markets.
In his prepared remarks, Powell reminded investors that the Fed is committed to purchasing Treasury bills at least into the second quarter of 2020.
The central bank started offering so-called repurchase agreements after a liquidity crunch in September, with the goal of keeping interest rates within its intended range.
Powell's reassurance that these purchases will persist for several months was "unequivocally more significant than dropping rates further," Rieder said by phone in an exclusive interview shortly after the press conference concluded.
The Fed's Treasury bill purchases have evoked memories of the now-ended quantitative easing program, which was conducted at a much larger scale and in more dire circumstances.
But for Rieder and other market observers, the Fed's initial retreat from QE created a new problem: it diminished market liquidity and left investors more vulnerable to volatility.
That's why Powell's reassurance on Wednesday was significant: it sent a strong, positive message to investors who were worried about taking risks, Rieder said.
"You can feel comfortable investing," he said. "That is a really big deal. People for the last three months thought the world was coming to an end."
Investors now have the green light to own risk - whether in stocks or in short-term Treasuries - because the Fed will be a responsive support mechanism, Rieder said.
He also advised against going to cash, and said it would be prudent to balance out risk-taking by owning some gold.