Fed Holds Steady: BlackRock’s Rieder on Rate Cuts and the Jobs Report

The U.S. labor market’s resilience has once again upended expectations for Federal Reserve policy. In the wake of April’s jobs report, which showed 177,000 nonfarm payrolls added—alongside downward revisions to prior months—BlackRock’s Chief Investment Officer Rick Rieder has signaled that the Fed is unlikely to cut rates in the near term. This “wait-and-see” stance, he argues, reflects both the Fed’s data-dependent approach and the lingering risks of inflation, fiscal constraints, and global trade tensions.

A Resilient Labor Market Pauses Rate Cut Hopes

The April jobs report, though slightly below consensus estimates, reinforced the Fed’s dilemma. Unemployment remains stubbornly low at 4.2%, while wage growth (though moderating) continues to outpace the pace required to keep inflation in check. Rieder noted that this combination of job growth and labor market tightness “has put the Fed in a box”—one where cutting rates risks emboldening inflation pressures.

Market expectations, as reflected in CME Fed Funds futures, now price in a 25-basis-point cut by June 2025—later than earlier projections of early-year easing. This delay aligns with Rieder’s view that the Fed will hold rates steady through the first half of 2025, awaiting clearer signals of disinflation.

Inflation’s Stickiness and the Fed’s Dilemma

Even as headline inflation has cooled, core measures remain elevated. The Fed’s preferred gauge, the Core PCE Price Index, stood at 2.8% in December . Persistent price pressures stem from structural factors, including geopolitical fragmentation, AI-driven spending, and the costs of transitioning to low-carbon economies. Rieder emphasized that these factors—alongside a 22% effective tariff rate—could keep inflation elevated for longer.

The Fed’s dual mandate complicates matters further. While the labor market shows no signs of a sharp slowdown, fiscal pressures loom large. The U.S. government’s debt burden, now exceeding $39 trillion, has pushed weekly Treasury issuance to $573 billion—outpacing entire economies like Saudi Arabia’s GDP. This strain has sparked calls for rate cuts to ease interest costs, but the Fed’s independence limits its ability to prioritize fiscal relief over inflation control.

Rieder’s Investment Playbook: Income Over Speculation

For investors, Rieder’s advice is clear: prioritize income generation over bets on rate cuts. Short-to-intermediate maturity bonds, particularly in high-quality credit and European peripherals, offer “once-in-a-generation opportunities” for real yields.

European credit markets, for instance, have surged as German fiscal stimulus has narrowed spreads to U.S. Treasuries. Rieder highlighted the appeal of swapping euro-denominated bonds back to USD, benefiting from a weaker dollar and “de-dollarization” trends.

Equities, however, face headwinds. Tariff-driven inflation and CEO pessimism (CEO confidence is at 2013 lows) have dampened capital spending. Rieder suggests focusing on sectors with pricing power and strong cash flows, such as tech leadership in AI infrastructure, rather than cyclical exposures.

Risks on the Horizon

While Rieder’s outlook is cautiously optimistic for income strategies, risks abound. The most immediate is the escalating tariff war. BlackRock estimates that tariffs now contribute 1.5 percentage points to inflation—up from 0.55 points in 2024. If global trade tensions escalate further, inflation could rebound, forcing the Fed to delay cuts indefinitely.

Meanwhile, the U.S. fiscal situation remains precarious. Foreign holdings of Treasuries continue to decline, with China’s holdings down 58% from their peak. This reduces external demand for U.S. debt, leaving the Fed’s balance sheet runoff (now at $20 billion/month) as a key tool to absorb supply.

Conclusion: A Delicate Balance

BlackRock’s analysis underscores a Fed navigating a narrow path between inflation control and economic support. With unemployment at 4.2% and core inflation at 2.8%, the Fed’s next move hinges on whether disinflation becomes more entrenched. Rieder’s recommendation to focus on income—via European credit, short-duration Treasuries, and select equities—aligns with a “higher-for-longer” rate environment.

Crucially, the Fed’s patience is not without cost. The BlackRock Investment Institute forecasts U.S. GDP growth at 0.0% for 2025Q4/Q4, suggesting a fragile economy. Investors must balance yield-seeking strategies with caution, recognizing that the Fed’s delay in cutting rates reflects not just data dependency, but also the limits of monetary policy in addressing fiscal and geopolitical headwinds.

In this environment, the old adage holds: income is king.