BlackRock Global Fixed Income CIO Rick Rieder breaks down the Biden administrations delay in naming a Fed chair nominee, as well as looking at inflation and which big name stocks are hitting intraday highs.
So, and the rates market, I mean, if you think about it, you can't justify these interest rates, given the inflation we're seeing. I don't think rates are moving that much higher, but I think they're going higher. I have to say, I don't think equity valuations are that high when you look at free cash flow yields. You know, certainly, when you look at relative fixed income, we look at free cash flow yields. You look at your earnings yield.
And boy, I mean, the last couple of weeks, some of the numbers we've seen, some of the earnings numbers that we're seeing print are pretty impressive. And I think one thing that people underestimate with companies, nobody talks about when you get inflation and the companies can price it through, almost like we've never seen before that's happening today, a lot of their costs are fixed. So if you think about it, some of your costs are variable, some are fixed. And you could price through these increases. It's a pretty-- the operating leverage you have as a company is pretty substantial.
So I think, listen, we called it the beginning of the year. And I felt like a bit of a joke earlier in the year when rates were rallying. But we think 1 and 5/8, 1 and 3/4 is about the right the range for the 10-year, and then maybe a little bit higher next year. We got pretty close to that. Now we're a little bit through that range. So, you know, at these levels, we definitely would-- we'd be better sellers than, you know, certainly when we start to move up again.
JULIE HYMAN: And Rick, what's the base case there at BlackRock for how many rate increases we could get, if any, in 2022?
RICK RIEDER: I mean, I'm pretty resolute in my opinion on that that this fight is going to move a couple, you know, one to two times next year, and then, you know, a couple, certainly two to three in 2023. But a lot is going to happen. You know, we're staring at some pretty unbelievable inflation numbers coming in, the CPI report. It wasn't just the sheer number. It was the pervasive nature of it across, virtually, every category. The next two months, you're going to continue to see strong inflation numbers.
And then, as you get into the spring, some of this is going to come off. Some of its supply chains certainly that is going to come off their base effects that take place. You know, some of the energy dynamics as you get into the spring are going to be different. So, you know, Fed's going to be faced with-- over the next couple of months, we're going to see this, what is still going to be some pretty heavy inflation data. But then it's going to start to ameliorate itself a bit.
So, listen, I think the Fed has got to start moving. I've said it for a long time. I think they're waiting way too long. And I think they have to start moving. I think they're ready to do that. And then I think we're going to start to see those rate hikes. But I think they're going be patient on raising rates, more patient than I think people have now started to overshoot the other way on in terms of how fast they're going to go.
BRIAN SOZZI: Well, Rick, we've been waiting too long to see who the next Fed chief will be. I mean, do you envision any sizable market moves if we do get a change atop the Fed?
RICK RIEDER: So I think, you know, I would say, it depends who you are. I mean, as a market practitioner, I think you'll see some movement. I think, you know, the characterization of Lael Brainard is more dovish, will impact short and interest rates will do better than than if it was Powell. And then, you know, you could see under a Brainard dynamic, you know, some steepening of the yield curve. At the end of the day, it's really for market practitioners because, you know, personally, I would tell you, their policy, ultimately, I don't think will be as different as people are characterizing.
Maybe Lael Brainard is a little tougher on the regulatory side, but I don't think the characterization of the two meant as Brainard as dovish, Powell less so. And I think the world likes to characterize things in one-word answers. I think they're both going to be pretty thoughtful about, gosh, time to move. We've got to get off of emergency policy. And I don't think that-- I don't think the dispersion of what they actually do will be that dramatic. But markets will react. Certainly, you'll get some moderate curve shifts on the back side of this.
JULIE HYMAN: So, Rick, do you think that the administration is making a mistake here by not just coming out and telling the market who the pick is?
RICK RIEDER: You know, it's hard to say behind the scenes, you know, what some of the machinations are around who you have to float it to and how you have to garner votes in support of it. But I would say, as somebody in the markets every day, I'm ready to go. The market's become laser focused, myopically focused on the shark closest to the boat in all regards.
And this one is-- we just need to know this so we can move on to the next thing. So we're ready to go. And like I say, for a market perspective, I ultimately don't think it would be that dramatic a difference. So, but, again, what happens behind the scenes around garnering support for either candidate, clearly, there's some politics around that.
BRIAN SOZZI: Rick, if we are, in fact-- if it is correct that the Fed is behind the curve on inflation, and they may have to raise rates quicker next year, what does that mean to the broader stock market?
RICK RIEDER: Like I said, if they really have to-- and again, I don't think that's going to happen, but you-- by the way, you can't write it off. There are going to be some stickier parts of inflation. Wages are going to be stickier. Rents are going to be stickier. So there are parts that are going to be hard to bring down. But, you know, so you could have that dynamic that you have to move faster. Yeah, clearly, it'll have a negative influence on the equity market.
But I think, you know, people tend to go in themes. And if you go back a month ago, you know what it was all about? There's no inventory, there supply chain shocks. If you look at the earnings numbers this week, what blew me away more than anything else is actually look at the inventory numbers. Walmart, Home Depot, Target, Lowe's, I was looking at Mattel the other day, TJX-- their inventory numbers are-- they've been able to restock. They're up. I mean, literally, year on year, up 20%, 30%, or over the two years, up of those sort of numbers. It's really impressive.
When you look at the retail sales numbers, those retail sales numbers, people are selling things. So there are some supply chain issues that are taking place in parts of electronics, autos for sure. But I think the growth of the economy is still-- and the demand that's out there is going to be pretty impressive going into next year.
So will the Fed have to accelerate faster? It'll be because of this demand, which I think is durable. I think the demand will continue. It'll be because you don't have-- quite frankly, I think it'll be driven by wages. We'll continue to accelerate and how that transmission works. But again, I don't think the base case is that it's going to be an accelerating runaway inflation. I think you'll see some of this ameliorate over into the spring.
JULIE HYMAN: And Rick, just quickly, we've talked a lot about Thanksgiving costs and turkey costs on this show as a marker of inflation. I don't know if you're the turkey shopper in your household or maybe just the carver. But that disconnect that we have seen between inflation, people complaining about inflation, but then spending, to your point just now, have you been surprised by that?
RICK RIEDER: Yeah, and by the way, I'm just the-- we go out, so I'm just the eater in the--
JULIE HYMAN: Lucky you.
RICK RIEDER: --family but we are-- by the way, Julie, you know, one of the things that I probably should have mentioned as well, food costs are a concern. And that is another one that's stickier around some of these others. Food costs are definitely-- there is an ag dynamic that is definitely working through on the inflation side. And so, you know, some of that, you know, will continue to play through. And, you know, it's something that we're certainly focused on, you know, going forward. But like I say, I think you're seeing some of these things will start to work its way through.
And I think one of the things that I always try to put in perspective around, you know, where are we today, where are we going to be T plus 1, where are we going to be in three to six months, is technology, the evolution. And you've been talking about it on the show today and otherwise. The technology that's coming through the system, I think people underestimate, including in food. So what happens is when you get bursts in price like I've never seen in my career, when you see bursts in price in any area, all of a sudden, technology comes in through efficiencies.
And I always feel like margin today is where entrepreneurialism follows tomorrow. And I think, you know, one of the things across-- you talked about EV, no doubt. And you think about how energy is transforming. You think about higher oil prices. That system is changing. So anyway, one of the things I'm trying to think about from an investment point of view is, what's everybody focused on today? Where are we T plus 1? Where's the world going to be focused on? And I really think technology is a place people underestimate of how it'll influence particularly prices.
JULIE HYMAN: That is a really fascinating point, and especially to our discussion earlier today about robots at sweetgreen perhaps down the line. Rick, it's always great to see you. Thank you so much for being here, Rick Reider--
RICK RIEDER: Thanks for having me.
JULIE HYMAN: --of BlackRock. Happy Thanksgiving to you, by the way. Appreciate your time this morning.