US Fed should stop quantitative easing ‘now’, says BlackRock

The BlackRock logo is pictured outside their headquarters in the Manhattan borough of New York, New York, U.S., May 25, 2021. REUTERS/Carlo Allegri

NEW YORK, Feb 10 (Reuters) – The U.S. Federal Reserve should stop buying bonds in the market to contain runaway inflation, a top investment manager at BlackRock (BLK.N) said on Thursday in a research note, after having expected inflation data in January.

US consumer prices rose sharply in January, driving the biggest annual increase in inflation in 40 years, fueling market expectations that the Fed could raise rates more aggressively than expected to cool the economy. Read more

As it seeks to contain inflation, the US central bank also plans to shrink its balance sheet by nearly $9 trillion, which has grown in size during the COVID-19 pandemic as the Fed has bought bonds. in the market to support the economy.

After the pandemic-triggered recession, the Fed was buying $120 billion worth of Treasuries and mortgage-backed securities each month. Although he has reduced this amount, he continues to make purchases. At the last meeting, the Fed said that starting in February it would increase holdings of Treasury securities by at least $20 billion per month and mortgage-backed securities by at least $10 billion. dollars per month, and would end these purchases in early March.

“The Fed continues to infuse the system with QE until the middle of March,” said Rick Rieder, BlackRock’s chief investment officer for global fixed income, referring to quantitative easing – the program buying Fed bonds.

“The Fed needs to respond and deal with today’s high levels of inflation and end QE now,” Rieder said in a note.

While the Fed’s response to the pandemic has been “heroic,” Rieder said, now was the time to move quickly to a policy neutral stance, avoiding an overly restrictive tightening of monetary policies at the same time.

“We believe policy needs to adjust quickly, but not necessarily too much in aggregate as the Fed assesses data over time, as this would create significant risk to markets and the economy,” he said. .

Reporting by Davide Barbuscia Editing by Alistair Bell

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