The Fed's 'mystical' 2% inflation target makes no sense and could drive millions of Americans out of jobs, BlackRock's CIO says
- The Fed's 2% inflation target doesn't make sense in the current economic climate, according to a to BlackRock executive.
- Millions of Americans could lose their jobs if the central bank continues raising interest rates to bring inflation down to target, Rick Rieder said.
The Federal Reserve's "mystical" 2% inflation target makes no sense and could drive millions of Americans out of jobs, according to a top BlackRock executive.
"This whole idea of there's a magic to 2% doesn't make any sense to me. You just had immense stimulus - let it play out," Rick Rieder, chief investment officer for fixed income at the world's largest asset manager, said on Bloomberg's "What Goes Up" podcast.
"Interest rates - how much would you have to move them to get the unemployment rate to a level to slow wages? It's not worth it. Why would you take millions of people out of work because you need to go from 2.7% to 2%?"
For the past five quarters or so, the US central bank has been focused on cooling historically high inflation, raising benchmark interest rates by 500 basis points from near-zero levels to upward of 5% – the fastest pace in four decades.
The policy tightening has worked, with annual inflation falling to 3% in June, from 9.1% a year earlier, according to the latest data. But that hasn't stopped the Fed from signaling more rate hikes as it seeks to lower the pace of price increases down to its 2% target.
"This 2% is some magical, mystical perfection – it's illogical for me," Rieder said. "When you get to 3, you're at a place where you're close enough to target and it's not that scary of data," he added.
So far, the US labour market has held strong, with the economy still adding jobs and the unemployment rate falling. Unlike Rieder, other market commentators including Nobel laureate Paul Krugman haven't been too worried about the Fed's policy. Krugman for one, said the US may escape a recession with inflation dropping and robust job growth.