The U.S. economy continues to surprise analysts, as the September 2024 jobs report showed far stronger-than-expected job growth. According to a report by CNBC, nonfarm payrolls surged by 254,000, surpassing the Dow Jones forecast of 150,000, while the unemployment rate fell to 4.1%. Despite this strong data, Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, stated in an interview on Bloomberg TV earlier today that the Federal Reserve should continue cutting interest rates.
Rieder acknowledged the strength of the labor market in his interview, describing the numbers as “pretty staggering.” He referred to the upside surprise in payroll growth and the drop in unemployment, as well as the upward revisions to previous months. However, Rieder argued that the broader economic context, particularly the nature of the U.S. economy, justifies further rate cuts despite the positive jobs data.
According to Rieder, the U.S. economy is predominantly driven by service sectors such as travel, leisure, healthcare, and education. These sectors, he noted, are “not interest-rate sensitive.” He dismissed the idea that a hard landing is coming, saying, “it’s just not even in the cards.” Rieder explained that service economies do not go into cyclical downturns in response to interest rate hikes in the same way that more interest-rate-sensitive sectors do.
Rieder pointed out that despite the Federal Reserve having raised interest rates by 500 basis points during the tightening cycle, it hasn’t had the significant impact many expected. He emphasized that this aggressive rate hike did not have the intended effect on inflation or economic growth, particularly in a service-based economy. “You raised rates 500 basis points… you don’t really have that much of an impact,” Rieder said, reinforcing his belief that the Fed should continue cutting rates to align monetary policy with current economic conditions.
CNBC also highlighted that wage growth exceeded expectations in September, with hourly earnings rising by 0.4% month-over-month and 4% year-over-year. This data strengthens the case that while job creation remains robust, inflationary pressures could still be present, but Rieder does not see this as a reason to pause rate cuts. In his view, wage growth in the service economy does not pose an immediate inflationary risk.
In the Bloomberg interview, Rieder made it clear that the Federal Reserve should cut rates by 25 basis points at its next meeting. He acknowledged that, while the economy remains strong, many people who rely on borrowing are still under financial pressure from the elevated interest rates. According to Rieder, reducing the federal funds rate to around 4% would relieve this pressure without accelerating inflation. “I think they should go 25, and I think they will go 25,” Rieder stated, predicting that the Fed will continue cutting rates.
The CNBC report also notes that job creation was particularly strong in the service sectors, with industries like restaurants, bars, healthcare, and government adding significant numbers of jobs in September. Rieder’s argument aligns with this, as he believes that these sectors are resilient to interest rate adjustments and can handle further cuts without triggering inflation.
According to CNBC, futures market pricing has shifted following the September jobs report, with traders now assigning a high probability of consecutive quarter-point rate cuts from the Federal Reserve in November and December. While there has been debate over the pace of future cuts, Fed Chair Jerome Powell acknowledged earlier this week that the labor market remains “solid” but has “clearly cooled” over the past year.
