BlackRock CEO Larry Fink Predicts Fed Will Not Cut Rates as Much as Market Expects
Larry Fink, CEO of the world’s largest asset manager, BlackRock Inc., has thrown cold water on market expectations of significant interest rate cuts by the Federal Reserve. During a CEO panel in Riyadh, Saudi Arabia, Fink, who manages over $10 trillion in assets, predicted just one rate reduction by the end of 2024, contradicting the widely held forecast of two reductions.
This bold prediction stems from Fink’s belief in a persistent, ’embedded inflation’ that he attributes to government policies aimed at bolstering domestic manufacturing and reducing reliance on foreign supply chains. These policies, exemplified by President Joe Biden’s recent legislation, can lead to higher prices for goods due to the higher wages paid to American workers compared to those in offshore manufacturing destinations like China.
“I think it’s fair to say we’re going to have at least a 25 (basis-point cut), but, that being said, I do believe we have greater embedded inflation in the world than we’ve ever seen,” Fink stated. He added, “Today, I think we have governmental policies that are embedded inflationary, and, with that being said, we’re not gonna see interest rates as low as people are forecasting.”
The Fed’s recent actions, including a 50 basis point rate reduction in September, signal a shift in their approach to managing the U.S. economy and tackling inflation. However, Fink’s outlook suggests that the Fed’s rate cuts may not be as substantial as anticipated.
The Debate Around Interest Rates Heats Up
The Fed’s interest rate decisions have become a focal point of debate in recent months. Former President Donald Trump’s economic advisor Kevin Hassett defended the rate cut, citing a weakening job market. Meanwhile, former Federal Deposit Insurance Corporation Chief Sheila Bair expressed concerns about further rate cuts, despite positive economic indicators such as increasing wages, a robust stock market, and strong job creation.
In contrast, Federal Reserve Governor Adriana Kugler voiced support for additional rate cuts, contingent on continued declines in inflation. This stance was articulated during her speech at the European Central Bank. On a global scale, the European Central Bank has also implemented three interest rate cuts within a year to stimulate a sluggish economy, shifting its focus from combating inflation to fostering economic growth.
With Fink’s prediction, the debate around interest rate policy is likely to intensify, as market participants grapple with the implications for investment strategies and economic outlook. Fink’s view, grounded in the potential for persistent inflation driven by government policy, adds a crucial layer of complexity to the ongoing discussion.
