BlackRock CEO: Inflation Will Be Higher, Interest Rates Will Stay Up
“‘I believe interest rates are going to be higher for longer…I believe inflation is going to be stickier for longer. In other words I think we’re going to have a 4%-ish floor on inflation.’”
BlackRock Inc. Chairman and CEO Larry Fink has stated in an interview with CNBC that global “fragmentation” and reshoring of supply chains means policy-makers will struggle to bring inflation down to the Federal Reserve’s 2% target. He argued that inflation will be higher for a longer period and that interest rates will stay up.
Fink said, “If we want to have national security for food, national security interests for chips and energy, no one is asking the essential question, ‘at what cost?’” Much of this has to do with why he believes inflation to be higher. He emphasized that this might be the right outcome for national security, and he’s not making a value judgment, but investors and policy-makers have yet to grapple with the implications of the cost of such a shift, which is likely to make inflation stickier for longer.
According to Fink, geopolitical issues are to blame, with a decades-long process of globalization giving way to “fragmentation.” The inflation rate is likely to remain high for an extended period because of recent shifts related to the pandemic, global policy issues, and environmental factors.
Fink’s standpoint is of great significance, given that Fink is one of the most prominent financial figures in the world. BlackRock is the world’s largest asset manager, and Fink is widely regarded as an influential voice in world finance. Thus, his pessimistic view adds to the discussion about inflation that is raging across the finance world.
BlackRock’s Earnings In First Quarter Beat Expectations
BlackRock Inc. delivered first-quarter earnings that beat the estimates of Wall Street analysts, even though its profit and assets under management dropped. BlackRock shares were up over 3% near midday on Friday. However, US stock indexes were lower, with investors weighing upbeat earnings from major banks, a fall in retail sales, and comments from various Fed officials. The Dow Jones Industrial Average was down 236 points, or 0.7%, while the S&P 500 shed 0.5%, and the Nasdaq Composite lost 0.9%.
Furthermore, Fink’s pessimistic view comes as investors worldwide are growing increasingly concerned about rising inflation. The global economy is in the post-pandemic phase; restrictions and lockdowns have eased in several countries, and economic activity seems to be picking up pace. However, the International Monetary Fund (IMF) recently warned that inflation might surge past the expectations of central banks, leading to significant upheaval that impacts global economies and equity markets.
What Do Experts Say About Inflation And Interest Rates?
There is rising concern in the US about the Federal Reserve gently easing back its $120 billion in monthly bond purchases, which may cause interest rates to soar. Treasury yields increased by about 0.03%, with the ten-year note rate climbing to 1.63%, which is the highest level since mid-March.
“Interest rates are rising because of higher expected growth and inflation,” Federal Reserve Chairman Jerome Powell said at an International Monetary Fund panel on Thursday. “In a sense, it’s a statement of confidence on the part of markets that we will have a robust and ultimately complete recovery.”
However, George Soros has stated in an interview that he’s concerned that a potential tax hike in the US will impede economic growth, especially due to the possibility that President Biden may not have sufficient votes in the Congress to get his proposal passed. Several Republican senators and business groups have already cautioned that the potential tax increase would adversely affect American businesses.
President Biden has proposed a tax hike on people who earn more than $400,000 a year to help fund his $2.25 trillion infrastructure plan.
Larry Fink, the CEO of BlackRock, Inc., has predicted that inflation will continue to rise, with interest rates staying up. This comes as global fragmentation and reshoring of supply chains will make it difficult for policymakers to bring down the inflation rate, which will remain high for an extended period due to the pandemic, global policy issues, and environmental factors. Fink emphasized that while this might be the right outcome for national security, investors and policy-makers have yet to grapple with the implications of the cost of such a shift, which is likely to make inflation stickier for longer. His pessimistic view adds to the discussion of inflation raging across the finance world, with the IMF warning that inflation could surge beyond central banks’ expectations, resulting in significant upheaval that will impact global economies and equity markets.