Inflation Is Cooling. But is 2% Out of Reach?

Summary

BlackRock CIO Rick Rieder discusses cooling inflation, the Fed's 2% target, and the larger risk of long-end Treasury yields. He argues that the Fed should use tools other than overnight rate hikes and that heavy fiscal deficits, Treasury supply, and AI financing are pushing real rates higher. He also lays out his fixed income positioning, favoring short-duration high-quality credit and high yield corporate bonds.

• The latest CPI gave markets relief, but inflation is still above the Fed's 2% target.
• Rieder expects core PCE around 2.8% by year-end and 2.5% next year, and sees core CPI trending lower.
• He argues the Fed should rely on balance sheet and other tools rather than aggressive overnight rate hikes.
• Long-end Treasury yields face upward pressure from fiscal deficits, heavy U.S. Treasury supply, and AI-related financing.
• Rieder's fixed income portfolio runs about a 6.8% yield with an A minus rating and under three years of rate exposure through BINC.
• He favors high yield, emerging markets, securitized assets, and owns more Europe than the U.S.
• High yield corporate bonds should be trading 150-200 basis points lower in yield, making corporate credit attractive.