The Federal Reserve's tightening cycle may cause financial markets to stop taking it in stride.
Rick Rieder, chief investment officer of global fixed income at Blackrock, said that the coming months will be important in assessing how the real economy reacts to the Fed.
He said that the lag between a strong change in monetary policy and effects on the economy will be longer than normal. The Fed will hike rates based on economic data.
Rieder believes that markets and the economy will become "Fed up" with too much tightening if growth and employment are slow.
The fed funds rate increased for the third straight week, bringing it to 3%.
Further increases will bring benchmark rates to nearly 5% by next year, policymakers said on Wednesday, following hikes of 25 and 50 basis points this year.
Rieder said the Fed's pace of rate hikes and its pivot from quantitative easing to quantitative tightening shows "an impressive resolve and a commitment rarely seen at the central bank since the days of Chairman Paul Volcker."
Other comparisons to Volcker have been drawn by the Fed Chair's drive to bring inflation down to 2%. During the Reagan administration, he hiked interest rates as high as 20%.
Fear has become reality on Wall Street, which has all but abandoned hopes of a dovish pivot from the Powell led central bank.
"After two decades of being hyper-focused on its growth mandate (at the expense of inflation risks), the tables are turned, with the Fed now pursuing inflation at the expense of growth."
Powell seems to be accepting the Volcker-esque roll with a laser focus on inflation as rates move higher.
With no pivot in sight, does the phrase "Don't fight the Fed" mean something has to break before inflation breaks?
Rieder believes that the economy and financial markets will have had enough of the tightening cycle.
The economy is there yet. No, not yet, but investors are watching every report and survey to see where the best times are to invest.
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