BlackRock’s bond king suggests US Fed ease off the gas

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The man in charge of money management giant BlackRock’s $763 billion in fixed income assets suggests that the US Federal Reserve should start to ease its foot off the gas pedal.

Speaking to the Financial Times (paywall), Rick Rieder, BlackRock’s chief investment officer for fixed income, “called for the Fed to cut its bond-buying to $40bn-$45bn a month, a level that would just maintain its stock of holdings by reinvesting debt as it matures.”

The Fed  is currently buying $85 billion in US government Treasury bonds and mortgage-backed securities each month, as part of its effort to push cash into the economy and support growth. To do that, the Federal Reserve creates new money and uses it to buy those bonds in a process known as quantitative easing, or “QE.” The Fed’s QE programs have sharply increased the US monetary base since the Great Recession hit. Check it out:

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Some—mostly ideologically conservative economists—say that remarkable rise in monetary base could risk inflation sometime down the road. (Right now, there’s pretty much no inflation because a lot of the money the Fed has created is sitting in bank vaults. If it was going to push up prices, it would need to be out in the economy chasing around goods and services.)

But with the US economy looking solid over the last few months, there have been some rumblings that the Fed could slowly cut back, or taper off, the amount of bonds it buys each month. While monetary policy would still remain remarkably loose by historical standards, that would be a big deal because it would mark one of the first—albeit tiny—moves away from Ben Bernanke’s aggressive approach to easy monetary policy. Some argue that even an incremental move such as slightly tapering off the Fed’s bond purchases could be enough to spook the markets.

At any rate, don’t expect any tapering any time soon. The much-weaker-than-expected US jobs report on Friday probably tabled the tapering debate for a while. But the markets will be all ears on the tapering issue when the Fed chief delivers an address at a Fed financial markets conference this evening.

Update: An earlier version of this post excerpted a portion of an FT story that said Rieder called for the Fed to “immediately” cut its bond-buying. The FT story was amended to remove the word “immediately,” which we also removed from our post.