BlackRock’s Rick Rieder: Why the US Economy Is Going to Be Fine

Key Takeaways

• BlackRock’s Rick Rieder expects the US economy to remain resilient, even in the face of new tariffs and slowing growth.
• The services sector will be more insulated from the impact of tariffs, and tailwinds from consumer spending and artificial intelligence will help drive growth once the initial shock of tariffs fades.
• At the Morningstar Investment Conference, Rieder said the biggest risk to the outlook right now is an unsustainable federal deficit.

Even with the disruption from tariffs on the horizon, Rick Rieder, chief investment officer for global fixed income at BlackRock, is confident that the US economy has room to run. Speaking at the Morningstar Investment Conference in Chicago, Rieder pointed to a US economy that is dominated by a service sector that’s relatively insulated from the brunt of the levies, a strong consumer and powerful tailwinds from artificial intelligence and other new advancements in technology.

“People are way too pessimistic,” said Rieder. “The US economy is incredibly resilient. It’s pretty extraordinary.” He laid out his case for ongoing strength, but also warned investors about the one big risk that could upend the outlook.

Drivers of Economic Strength

Over the last six months, a dramatic reshaping of trade policy has upended the outlook for global growth, triggering concerns among investors about the possibility of a recession. Those fears reached a crescendo in early April and have since faded, but market watchers have cautioned investors that the economy isn’t out of the woods, even if the Trump administration’s tariffs are reduced or suspended.

While new tariffs on US trading partners may result in short-term price shocks and slightly higher inflation, Rieder expects the economy to absorb that impact without a major slowdown. That’s because much of US economic activity is driven by the services sector rather than the goods sector. The services umbrella includes healthcare, education, and other intangible products, while the goods sector comprises tangible products like cars, appliances, and clothing. Over the past few decades, the United States has shifted away from a goods- and manufacturing-oriented economy.

While tariffs will undoubtedly produce ripple effects across every industry, the services sector will be less affected than the goods sector, Rieder argues. “Service economies don’t go into recession,” he says. Goods economies, on the other hand, tend to be more cyclical and more sensitive to changes in the outlook. After the tariff shock fades, Rieder sees tailwinds from strong consumer spending and new technologies like artificial intelligence and cloud software. Rieder expects nominal GDP growth of 4.2% for 2025—lower than in previous years, but certainly not recessionary.

One Big Risk

While the US economy may be well-positioned to withstand tariffs, Rieder highlighted one headwind just beginning to hit the markets. Concerns over a ballooning US deficit have permeated fixed-income markets over the past few months, fueling volatility and sending longer-term yields higher. Rieder characterizes the federal deficit as “the biggest risk in markets today and for the balance of this year.”

Amid wider concerns about inflation and rising rates globally, he says there’s a possibility that Treasury auctions might not function as smoothly, especially if foreign buyers diversify away from US debt as the dollar weakens and the policy outlook looks uncertain. That could mean volatility. “You’re not going to have the ballast of international buyers like we used to,” he says, and domestic investors could lose their appetite if “safe” US debt starts to stumble. “There’s a tail risk” to the market, he says. The risk isn’t that the US won’t be able to fulfill its fiscal obligations, but that an unforeseen shock destabilizes the market.

On top of that, an unsustainable deficit could make things more difficult for policymakers down the road. With the debt rising, higher interest expenses could “eat up all the fiscal flexibility the country has,” he says. He thinks worries about the US debt load, which regularly surface among market watchers, feel more urgent because of higher inflation. The Fed is unlikely to dramatically lower interest rates while price pressures remain high, “so now the cost of our debt is escalating.” Rieder believes GDP growth will have to remain steady and high in the years ahead to help offset the pressure from a growing debt load.

Takeaways for Investors

Against this backdrop, Rieder cautions investors against the long end of the yield curve. At longer maturities, he says, the extra volatility caused by deficit jitters isn’t worth it. He prefers fixed-income assets with shorter maturities where investors can capture comparable yield with less risk.

As for hedging risk more generally, Rieder keeps it simple: “Just take less risk. You should own as many equities as you’re comfortable owning.” Investors can also consider tools like buffered ETFs, hedging strategies, or alternative assets like gold or even cryptocurrency to help mitigate downside risk. He advises investors to prepare for a future that looks very different from today. “Anybody who thinks they know what the world looks like in two years, I just don’t think they do.”