Federal Reserve building in Washington. (Photo: AP)

If it were up to BlackRock’s Rick Rieder, he says he would have upped interest rates three to six months ago.

On the cusp of a Federal Open Market Committee meeting next week that may or may not include a decision to raise rates for the first time in almost 10 years, Rieder talked to CNBC’s “Squawk Box” on Tuesday about his thoughts on interest rates.

“Can the Fed move? We think they could have moved three [to] six months ago,” the chief investment officer of fundamental fixed income at BlackRock, who oversees more than $740 billion in assets under management, told CNBC.

He explained why he thinks it’s time for higher interest rates.

“It’s not only a 0% funds rate,” he said. “If you assume the Fed has $4.5 trillion in the balance sheet, you have an effective funds rate well below 0%. That’s not the right level given what growth is in the economy, given where we’re going. So do we think [the Fed] could go? We think they could go. We think they should go and arguably should have gone a little while ago.”

Rieder’s views are strikingly different from another well-known bond guru, Jeffrey Gundlach, who does not think rates should be raised.

Rieder, though, doesn’t see a rate hike as all that scary.

“It’s hard to assess how [Gundlach is] thinking about it,” Rieder told CNBC. “I will say, we’re talking about historically low interest rates and, I will say, when people talk about, ‘The world’s going to come to an end if we get rates up 25-50 basis points.’ It’s very important to think about – people compare this to different cycles and think about when the Fed tightened policy – you’re talking about a Fed that’s going to be extremely gradual, you’re talking about a Fed that if growth doesn’t keep up they’re going to slow down the process. It’s not that scary.”

While some are worried about what effect raising interest rates in the U.S. could have on the rest of the world, Rider said the U.S. benefits from the quantitative easing and easy policies in the rest of the world today.

“The one critical point … with Europe and Japan and the rest of the world behind from a growth perspective, what it does is keeps the back end of the yield curve down for the U.S. which is hugely important,” Rieder told CNBC.

He also doesn’t think a rate hike will halt job creation.

“If you start to move rates moderately higher and you kept the moniker of we’re going to be gradual, I think the pace of employment continues at the same pace,” Rieder said. “I don’t think it has any impact today.”

Rieder also discussed the impact that historically low interest rates could have on fixed income. If asset prices are distorted for too long, Rieder sees the potential for a bubble to build in the credit market.

“I don’t think we’re in a bubble necessarily in the high-yield market,” he told CNBC. “I don’t think we’re in a bubble in many markets today. But, you are starting to see leverage build.”

One sign of this, Rieder said, is that underwriting standards are starting to deteriorate. He also looks at recent activity from investment-grade companies.

“You look at the amount of supply that’s coming into the market in the last few months from investment-grade companies to fund M&A, to fund [capital expenditures], to fund equity repurchase,” he said. “There’s a tremendous amount of gearing that’s going on. Is it bubble conditions yet? No, it’s not bubble conditions. But, if you don’t let things normalize you can get there.”

 

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