Tags: BlackRock | Rieder | Fed | QE

BlackRock Urges Fed to End QE

By    |   Tuesday, 09 April 2013 11:05 AM

BlackRock, the world's biggest asset manager with $3.79 trillion under management, is urging the Federal Reserve to end its quantitative easing (QE) program.

“Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy,” BlackRock Managing Director Rick Rieder told the Financial Times. “It is a very large and dull hammer for markets.”

The stance represents a switch for BlackRock, which previously supported the Fed’s QE, according to the Times.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

In its QE program, the Fed is purchasing $85 billion of Treasurys and mortgage-backed securities a month to keep interest rates low and spur economic recovery.

Critics charge that QE will create inflation and create asset bubbles.

Rieder is urging the Fed to scale back its bond purchasing to $40 billion to $45 billion a month, the Times reports, saying it should still keep its holdings and reinvest them as the bonds mature.

“The economy is on a reasonably strong footing,” he told the Times. “The U.S. labor market faces an array of structural headwinds that are likely to only be overcome in time.”

Those headwinds, he said, include healthcare and pension costs, shortages of desirable skills and an aging population.

Ten-year Treasury rates are about 1 percentage point lower due to the Fed’s actions, Rieder said.

Some finance experts warn that bond investors may suffer heavy losses when the Fed ends QE and rates rise.

“Losses that occur to fixed-income portfolios will be more and more acute,” Rieder explained.

The Fed has said it will continue QE until unemployment falls to 6.5 percent or inflation exceeds 2.5 percent. Unemployment recently fell to 7.6 percent, although work force participation fell.

St. Louis Fed President James Bullard said he supports gradually reducing QE as the economy shows signs of improvement.

“There’s more willingness on the [Federal Open Market Committee] to make relatively small adjustments as data comes in,” Bullard told CNBC, calling that a welcome development. “I’d be willing to move in small increments.”

Fed Chairman Ben Bernanke has stated he’s willing to gradually adjust the bond buying, he noted.

“You could adjust up or down,” Bullard told CNBC. “But the economy will most likely continue to improve and we’ll be in a position to slowly ratchet down the pace of purchases.”

Bullard predicts unemployment will fall to near 7 percent by the end of the year.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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BlackRock, the world's biggest asset manager with $3.79 trillion under management, is urging the Federal Reserve to end its quantitative easing (QE) program.
BlackRock,Rieder,Fed,QE
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2013-05-09
Tuesday, 09 April 2013 11:05 AM
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