The market expectation of four or more rate hikes in 2018 by the Federal Reserve is overlooking headwinds which could easily upset recent positivity, BlackRock’s Rick Rieder has said.

Rieder, who is chief investment officer for global fixed income at the firm, made the comments in a press statement following the announcement of an interest rate from 1.25 to 1.5 at the FOMC's December 13 meeting.

In the comment, Rieder, who is also an active portfolio manager, said that the hike was expected but that what is important now is how it feeds into market thinking for the year ahead.

‘In the policy announcement, press conference and Summary of Economic Projections, the central bank clearly showed us that they are going to continue to move down the tightening path according to their previously outlined plan.

‘Given that inflation is moving up moderately and not accelerating significantly, we are not worried about any significantly faster path from the Fed, yet they certainly could move rates four times next year. We continue to hold that there is a very different dynamic that stems from a central bank when it is tightening versus when it is easing.’

Focusing on the market expectation of four hikes, Rieder said he is more comfortable with a working scenario that sees the Fed – under new chair Jay Powell – only undertaking three moves over the coming year.

‘[There is] a chance of four hikes, but if there is any tangible downside change to growth, inflation, global growth or market instability, we should also expect their pace of policy normalization to slow considerably.

‘In the end, while many have now shifted to thinking that the Fed going to hike four or more times next year, we think that is overstating the symmetric nature of potential risks to today’s run of very good news. In fact, the Fed could be more patient than some are now expecting, particularly as inflation is very unlikely to accelerate very quickly, or beyond their control.’

Rieder added that the Fed – as well as other central banks – could take a more measured response to market movements, with a clear focus on inflation dynamics.