NEW YORK (Reuters) - BlackRock Inc's BLK.N Rick Rieder is buying longer-term bonds because softening inflation could force the U.S. Federal Reserve to pause interest rate hikes, the top fixed-income investor told Reuters this week.

FILE PHOTO - Rick Rieder, BlackRock's Global Chief Investment Officer, speaks during the Reuters Global Investment Outlook Summit in New York City, U.S., November 14, 2016. REUTERS/Brendan McDermid

Rieder, who is chief investment officer of global fixed income for the world’s largest fund manager, said inflation could be declining from current levels.

“People keep waiting for the bogeyman coming in terms of inflation, and they’re going to have to wait a long time,” Rieder said on Wednesday. “Why not pause?”

BlackRock manages $6.4 trillion in assets, with nearly a third of that in fixed income.

Over the past three weeks, Rieder has been buying longer-term bonds, particularly Treasuries coming due in 5 years, but also those due as far in the future as 30 years.

Earlier this year, Rieder had been selling long bonds, citing uncertainty around Fed policy.

Now, he says, the picture is clearer.

Markets, bracing for an economic slowdown possible by 2020, are pushing back against three years of Fed rate hikes aimed at restoring policy to normal footing a decade after the 2007-2009 global financial crisis.

Strong buying pushed 30-year U.S. yields US30YT=RR to 3.12 percent on Thursday, from highs this month above 3.3. The benchmark S&P 500 .SPX stock index is down 2.2 percent over the same period, including dividends.

Fed Chair Jerome Powell said on Nov. 28 policy rates are “just below” estimates of a level that neither brakes nor boosts a healthy U.S. economy.

Markets assign an overwhelming probability that there will be two hikes at most between now and the end of 2019. Rieder in September predicted the Fed would raise rates only twice or so in 2019. At the time markets priced in a better-than-even chance that the Fed would move three times or more.

Investors await a U.S. jobs report on Friday that will shed light on wage inflation.

But inflation is unlikely, Rieder said, as consumers fail to purchase big-ticket items. Housing and other interest rate-sensitive sectors, meanwhile, are reeling from rate hikes.

The Fed is also shrinking its cache of bonds bought after the financial crisis to spur lending and investment.

Partly as a result of that, global market liquidity is set to shrink compared to the prior year for the first time since the crisis, BlackRock estimates show.

Indeed, investors should expect more volatility, Rieder said.

“People are underestimating the amount of liquidity that’s being drained from the system.”