The employment rate in the US is falling too fast for the Federal Reserve to accept it as evidence of its dual mandate working, according to star manager Rick Rieder.
New York-based Rieder, who is co-head of fixed income for the Americas at BlackRock, said the September 6 labour statistics fell just short of consensus but the real focus is on how many people are actively seeking work.
The participation rate, measuring the active proportion of the US workforce, fell to 63.2%, which is the lowest it has been since 1978.
Rieder said this reduction meant those counted as unemployed was able to ‘improve’ to 7.28% but was a hollow victory for the Federal Reserve’s efforts to cut the numbers of those out of work.
‘The continued reduction in the participation rate is allowing unemployment to drop too quickly without producing the genuine strengthening we’d like to see in labour markets, so the Fed will have to adjust its approach here,’ he said.
Rieder, who is lead manager on the BGF US Dollar Core Bond fund, said the Fed target of unemployment falling to 6.5% could be reached by mid-2014 if those out of work continue to give up active participation at the current rate.
This, Rieder said, would force the Federal Reserve to revise its mandate and look more closely at what it is trying to achieve before withdrawing its market support.
‘They may well link a minimum inflation expectation threshold to revised unemployment targets, or they may expand the range of labour market statistics they are highly focused on, rather than overly focusing on unemployment.’
Looking ahead, Rieder said he fully expects tapering of QE to be announced at the September meeting of the FOMC, which is line with market expectations.
However, beyond that, Rieder believes the change in composition of the FOMC, which will come once Ben Bernanke’s successor is named, will lead to a period of volatility and uncertainty for the markets.
Rieder was previously highlighted by Citywire Global as being one of the most prolific managers in the 35 juristictions covered by Citywire’s Fund Manager Ratings.
The BGF US Dollar Core Bond fund returned 11.12% over the three years to the end of July 2013. This compares to a rise of 9.88% by the Barclays US Aggregate Bond TR, its Citywire benchmark, over the same period.