The Fed should go on vacation after this year's rate hikes to avoid the risk of overdoing its tightening efforts, BlackRock says

The Federal Reserve's rate hikes should be enough to put policy makers in a wait-and-see position to reduce the risk of them overtightening and damaging the world's largest economy, according to the world's largest asset manager.

Rick Rieder, chief investment officer of global fixed income at BlackRock, wrote a Friday note in which he said that the view was correct.

Rieder believes that the Federal Open Market Committee can raise policy rates by 75 basis points at the September 21 meeting. The investment executive said that markets were pricing in 125 basis points of rate hikes.

The long-term estimates of the "neutral rate" held by members of the rate-setting committee are beyond the range of 3% to 3% for the Fed Funds rate. A neutral level of interest rates doesn't affect the economy.

"Pushing the Fed Funds rate to a mid- to high- 3% range will allow the Fed to get to it's destination and then to relax and watch its policy adjustments work."

The Fed isn't close to its 2% inflation target. The headline consumer price inflation rate was 8.5% in July, but it was less than it was in June.

Rieder said that they are concerned about the potential for the central bank to over tighten and undermine the progress that has been made.

Wage growth has been seen for lower-income workers. If the country is past the worst in price increases for food and energy, the higher pay and tight labor market should be good news for lower-income people.

"Today we find ourselves in an environment in which corporate investment is slowing and the housing market is cooling, engineered by higher prices, tighter policy and economic uncertainty, so the Fed by the end of the year will set up to merely sit back, relax like a vacationer today, and merely

Powell said that the journey to slow down growth will bring some pain to American households and businesses. Mortgage rates and credit card debt are going to go up as a result of the four rate hikes by the Fed.

The stock market sold off after Powell spoke. The S&P 500 and the DJIA fell more than 3%.

After three-quarters of a percentage point of rate increases in June and July, the Fed Funds rate is currently at a range of 2.25′′-2.25′′. The central bank's preferred inflation gauge, the core PCE, came in at 4.6% for July year over year, and was up 0.1% month over month, softer than Econoday's consensus estimates.

The FedWatch tool showed a higher probability of a rate increase after Powell spoke. The probability of a rate increase of 75 basis points was down from the day before.

September 20 is when the Federal Open Market Committee will meet.