BlackRock’s chief investment officer of global fixed income Rick Rieder sat down with CNBC on Wednesday to discuss the Federal Reserve’s meeting this week.
Rieder said that he believes the financial system is “too flush with liquidity” due to the US central bank’s bond purchases of $120 billion each month coupled with fiscal stimulus.
Fed chair Jerome Powell has said he will keep the historic bond-buying program in place “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
When asked what the Fed should do moving forward, Rieder said he believes the bond-buying program needs to be reduced.
“I think that they could start hinting that it could start reducing the tapering program. Right now the amount of liquidity that’s come into the system is extraordinary,” Rieder said. “Quite frankly, the system is too flush with liquidity.”
“Not only are you getting the $120 billion a month in from the fed, but what’s happening from treasury now is you’re getting this immense amount of money coming in since February. The total, if you add up the total amount of fed and treasury you’re getting about a trillion into the system,” Rieder added.
The BlackRock CIO also pointed out that bank deposits are up $800 billion this year and said that the concern of overheating is “starting to permeate the discussions we’re hearing in a number of different circles.”
Rieder added that overall he believes the Fed is doing a good job, but the amount of cash it has been pumping into the economy is “just too high right now.”
He then clarified that he is not asking the fed to tighten conditions, but rather to move away from the emergency conditions that have been the norm since the pandemic began.
The BlackRock CIO said he’s looking for a policy that’s “accommodative,” but with less liquidity, because a continued rise could create some “overheating.”
When asked about inflation, Rieder said most of the inflation that’s occurring now is “transitory inflation” and he expects much of it will come back down to Earth or be absorbed in margins.
The real effect of the excess liquidity in the markets, according to Rieder, is rising asset prices and valuations.