Former recent Federal Reserve chair contender and BlackRock chief investment officer of fixed income Rick Rieder thinks the guy who ultimately got the gig — Kevin Warsh — has one big challenge on his hands.
That is, a rate hike won’t necessarily bring down the cost of things for households.
“What is difficult concerning inflation today, based on the San Francisco Fed’s analysis, is that the cyclical parts of inflation are generally well behaved, yet it is the acyclical parts of inflation that are difficult to contain, and tend to resist movements in interest rates,” Rieder wrote in a new note. “Clearly, energy, insurance, healthcare, and education are facing and passing through higher costs today. The Fed’s challenge is combating that with their toolkit.”
“Yet, moving the interest rate today to a marginally more restrictive rate is the Fed’s directive toward addressing the fact that inflation is too high relative to target,” Rieder added, “and inaction would not be the preferred route going forward.”
Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, is interviewed on the floor of the New York Stock Exchange, Monday, Jan. 12, 2026. (AP Photo/Richard Drew) · ASSOCIATED PRESS
The Fed’s decision to lift rates on Wednesday comes as sticky inflation readings and rising energy costs force central bankers back into tightening mode. The rate hike marks the central bank’s first interest rate increase since July 2023.
Investors are also focused on the updated economic projections and the Fed’s “dot plot” to gauge future rate moves, and the dot plot didn’t rule out one more hike this year.
A hawkish dot plot and follow-up commentary from Fed Chairman Kevin Warsh during his presser stand to further elevate borrowing costs and pressure stocks initially around the world.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
The Dow Jones Industrial Average (^DJI) dropped 631.21 points yesterday as investors digested the rate hike news.
“I don’t actually think a Fed hike is going to necessarily solve the problem,” Robinhood Markets chief investment officer Stephanie Guild said on Yahoo Finance’s Opening Bid. “While the market can certainly absorb 25 basis points or, you know, the 50 basis points that it’s pricing in for this year, I don’t actually think that to me is putting a solution to a different problem.”
Guild explained, “I think what we have here is we have high demand for money, and we have a high need for energy. But the supply of it is waning. … So you have these things that fuel the economy. They’re kind of causing a lot of friction now. And I’m not sure a rate hike is actually going to solve that. And so I do think for investors, you have to make sure you have hedges for these kinds of things in your portfolio.”