Rick Rieder, global head of fixed income of BlackRock (NYSE:BLK), the largest investment funds in the world, says that the ECB recently to increase the pressure on the federal Reserve to lower its rates, which should be clearly announced at the meeting this evening.
Mario Draghi said on Tuesday that the european central bank could reduce interest rates or buy more assets if inflation does not reach its target. This resulted in a drop in yields, global bond, the yield on the German 10-year Bund fell to a record low of -0,32 % and that of the government bonds French 10-year-old being moved into negative territory for the first time.
“I think Draghi has set the bar higher. I think that the comments by Draghi are very aggressive. When he said that inflation must be higher than this level at some point in the future, it means that he wants to go beyond. This places the bar higher, ” said Rieder.
Rieder was also of the opinion that Draghi is also in the process of making a mark in a policy which could remain in place after his departure in October. “I think that’s his legacy. It establishes a framework for the new president, whoever he may be, can be difficult to reverse. It puts a stake in the ground. “
Draghi’s comment have been made on the first day of the June meeting of the Fed, which lasted two days. At the end of the meeting this evening, the Fed is expected to issue a news release and revised economic forecasts and interest rate revised downward, which will reduce interest rates, perhaps as early as the July meeting.
Rieder said the Fed is in a position where she will want to signal a change in the political box. “I think the context is important. Draghi has raised the bar, and we are generally in a cycle of rate reductions at the global level, ” he explained.
“If the Fed didn’t open the door to a significant drop in rates, the dollar would appreciate and this is not what she wants” , he said.
That is why, it is expected that the Fed would intervene in July, not with a rate cut of 25 basis points as provided for in the market, but with a decrease of 50 basis points.