It's 'foolhardy' to think the Fed will cut interest rates at all in 2023, BlackRock's bond chief says

• It's "foolhardy" to expect Federal Reserve interest rate cuts this year, BlackRock's bond chief said.
• "They keep coming out and telling you that they're not going to do that," Rick Rieder said Monday.
• Stocks could deliver 9% returns this year, but are likely to be highly volatile, the CIO added.

Investors are kidding themselves if they expect the Federal Reserve to slash interest rates at all in 2023, according to BlackRock's bond chief Rick Rieder.

Two Fed bosses — San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic — both said Monday they expect the US central bank to raise rates past 5% and hold them there to bring inflation under control.

The policymakers' latest comments showed the Fed won't loosen monetary policy at all this year, according to Rieder, who is $10 trillion asset manager BlackRock's chief investment officer for fixed income.

"Markets have gotten very excited that the Fed is going to tighten and then start easing again," he told Fox Business' "The Claman Countdown" on Monday.

"I think that is foolhardy - they keep coming out and telling you that they're not going to do that."

"I don't think they need to go that far in terms of tightening, but the idea of easing doesn't make sense for a while," he added.

Two-thirds of traders now expect the federal funds rate to be at or lower than its current level of around 4.5% by the end of 2023, according to the CME FedWatch Tool.

But Rieder said that markets shouldn't expect the central bank to start slashing rates until 2024, because it's not yet seen the economic data that would encourage a policy pivot away from hikes.

The November reading of the US Consumer Price Index showed inflation still running at 7.1% - close to a four-decade high and way clear of the Fed's 2% target.

Meanwhile, the US economy added a better-than-expected 263,000 new payrolls last month, which suggests that the Fed still has scope to raise interest rates further without unemployment surging.

"They need to see the data before they back off," Rieder told Fox Business.

"There's been a series of projections that in '23 they'll start tightening and then start easing again," he added. "I don't think you'll see that, because you need to see data really soften first and inflation come at target. I don't think it's a '23 event."

Stocks traded mixed Monday after Daly and Bostic signaled the Fed will hold interest rates at above 5% for much of 2023.

The S&P 500 fell 0.08%, and the Dow Jones Industrial Average slipped 0.34%, but the Nasdaq was up 0.63% at the closing bell.

Rieder said uncertainty around the Fed's tightening campaign will carry on injecting volatility into equity markets - and that investors should prefer corporate bonds and other lower-risk assets that are likely to offer concrete returns.

"If you think about what equities are going to do this year - could equities generate an 8 to 9% positive return? Maybe," Rieder said.

"But it's going to be volatile," he added. "You can clip 6% in good-quality assets - that is nirvana."

Read more: Don't pile into US stocks just yet - it'll take more than slowing wage growth to trigger a Fed change of heart on interest rates, UBS says