BlackRock: Fed In "No Hurry to Shift From Its Policy Rate Hike Pause"

The Bureau of Labor Statistics revealed on Tuesday that the latest consumer price index (CPI) increased by 0.2 percent during the month of February after remaining static in January, while the all items index increased 1.5 percent before seasonal adjustment. According to Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, the latest numbers could mean the Federal Reserve will be in no rush to shift from a rate pause.

With headline CPI running at 1.5% year-over-year, core CPI softening slightly from last month, and core PCE still sub-2%, the Fed will be in no hurry to shift from its policy rate hike pause,” Rieder wrote in an email. “The key to why today’s report is interesting, but ultimately not that significant in terms of market disposition, is that the Fed is looking to see inflation expectations rise before even contemplating another rate increase, and expectations have fallen of late.”

“Finally, for clues to potential policy adjustment in the coming months, keep one eye trained closely on inflation expectations, one on the growth and employment landscape, and also keep watch for changes to financial conditions,” Rieder added.

2019 has seen U.S. equities bounce back after a volatility-laden fourth quarter in 2018, but traders are dialing back their inflation bets, which sends a message of skepticism that continued growth through 2019 is sustainable.