The economy is likely to bounce back later this year, and it would be both disheartening and potentially destabilizing if the Fed were to squander this window of opportunity to make an initial rate move in 2015.
“Emergency” accommodation has overstayed its welcome, and keeping rates excessively accommodative almost certainly holds an increased risk for markets. The Fed’s highly accommodative monetary policy has inflated asset values across global markets. The longer the Fed leaves its target rate at zero, the greater the chance of asset price bubbles—and eventual crashes.
For more on the dynamics and impact of a potential Fed rate increase, be sure to check out the full BlackRock Investment Institute paper.
Sources: BlackRock research, BlackRock Investment Institute, U.S. Department of Labor Bureau of Labor Statistics
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog. You can find more of his posts here.