Fed might not need to hike rates in May as economy slows, says BlackRock

Fed might not need to hike rates in May as economy slows, says BlackRock

The Federal Reserve may not need to raise interest rates further to fight inflation, as the fallout from last month's turmoil in the banking sector and a series of recent labor data point to a slowing U.S. economy, a BlackRock (BLK.N) executive said on Monday.

Though Friday’s closely-followed Labor Department employment report showed that U.S. employers maintained a strong pace of hiring last month, it was also marked by slowing wage gains and jobs growth that was below the three, six and 12 month moving averages, said Rick Rieder, chief investment officer of global fixed income at BlackRock, the world's largest asset manager.

That data, together with labor market numbers released last week and expectations of tighter credit conditions after the failure of two U.S. banks last month, paint a picture of a slowing economy, according to Rieder.

"Last Friday’s employment report, while clearly not alarming in any way, allows investors to see more clearly through to what should be a tangibly slower set of economic conditions," Rieder wrote in a report.

"Presumably, this will also see a cessation of Fed policy rate hikes after one more possible hike at the May meeting, although it’s also possible the Fed is done already," he added in an emailed statement to Reuters.

The Fed over the past year has embarked on one of its most aggressive rate hiking cycles in decades to curb price pressures and has forecast borrowing costs will remain around current levels to the end of 2023. For now, traders take a more dovish view and are betting policymakers will cut rates later in the year, taking the fed funds rate to 4.35% from its current 4.75% to 5% range.

Investors will be closely watching an inflation report on Wednesday to gauge the near-term trajectory for interest rates.

According to Rieder, inflation should ease going forward, in line the economic slowing seen last month.

"Hopefully ... markets can look forward to a more relaxed Fed from here," he said.