The February job creation figure of 295,000 exceeded the consensus estimate and was similar to the 3, 6 and 12 month moving average of payroll gains, Rieder wrote in a research note.
The job gains came despite layoffs in the oil and gas industry and winter storms, putting the unemployment rate at 5.5%. Moreover, BlackRock believes wage growth will see a “modest acceleration” later this year.
“The last time that 12-month jobs growth was as strong as it is today, the Fed’s policy rate stood at 6% (versus near zero), and we strongly suggest that Fed rate normalisation will not only be borne well by the economy, but that it may actually hold a positive impact, while keeping rates excessively accommodative almost certainly holds an increased risk for markets.”
The probability of a US interest rate hike in June is now 55%, Rieder believes. In September, the probability is 35%, and at the end of the year, 10%.
Because a rate hike is already priced into the market, market disruption will be minimised and there will be no negative impact on the broader economic recovery, he added.
“[W]e may actually discover that rate normalisation has some positive economic influences, as the distortive aspects of recent monetary policy give way to a more natural state of affairs.”