But Rieder, BlackRock’s chief investment officer for global fixed income, does not think Trump’s tax cuts will weaken the economy – it could actually be positive for growth.
“I think 21% is too low,” Rieder said in the interview. He pointed out how many companies have used their tax savings to buy back shares, as proof that the benefit to businesses is ‘too high’.
Rieder said the U.S. economy could “definitely” withstand higher corporate taxes, and suggested that raising the corporate rate could help ensure that economic profits are distributed evenly between businesses and workers.
“The U.S. economy is incredibly resilient,” he said, “and will actually perform well if you get a share of this redistribution and consumption in an easier and better place, especially for lower and middle incomes.”
Pay off a mountain of debt
Last week, the Business Roundtable, a powerful alliance of CEOs, warned that raising the corporate tax rate would make American businesses uncompetitive on the world stage, just as the recovery is gaining momentum.
“The Roundtable will actively oppose efforts to increase corporate taxes,” Josh Bolten, the group’s chief executive, told a news conference.
But BlackRock’s Rieder suggested that the problems be overshadowed and not offset the benefit of additional tax revenue after Washington piled up trillions of debt to fight the pandemic.
Rieder said that raising the company rate ‘does not really hurt cash flow’ for companies and that we can maintain a lower debt profile for the country. ‘
Fed could start declining very soon
“I think it’s going to surprise people upside down,” Rieder said. “You’re going to see a fair upswing in the economy.”
He added that “it’s been a very long time” since he felt optimistic about the US economy.
Predictions for an economic boom are putting pressure on the Federal Reserve to tighten its emergency position – before it warms the economy. Not only are interest rates at zero, but the Fed still buys $ 120 billion worth of bonds every month.
“I think they should start reducing the programs soon,” he said.
Fed cancellation plans could upset investors who have become accustomed to extremely low interest rates. But Rieder wiped away this concern.
“It will not hurt the economy. In many ways, it helps consumers and also helps savers” hurt by low interest rates on money sitting in the bank, he said.
Run-away inflation? Not so fast
By ending its crisis-era policies, the Fed will also help keep inflation in check.
“As a central bank, you do not want to fight from behind to try to curb inflation. It is so much more effective to be ahead and draw up the plan.”
The big concern is that runaway inflation like that of the 1970s will force the Fed to raise interest rates rapidly, paving the way for economic recovery.
While Rieder sees inflation accelerating, perhaps to 2.5% year-on-year, he is not worried about ‘explosive’ price increases.
“I do not think inflation is going to go away at all,” he said. “In fact, I think the cultural differences around inflation versus the ’70s and’ 80s are enormous.”
In particular, he pointed to the role of technology, in which everything from Amazon and Uber to cloud computing keeps a lid on prices.
“The way people spend, how they shop and find prices at better levels,” Rieder said. “On top of that, we no longer run a manufacturing, commodity-oriented economy.”