BlackRock CEO Larry Fink said the Fed could cut interest rates in the near term, but a future rate hike is on the horizon if the U.S. economy remains strong.
Speaking on a panel at the World Economic Forum’s annual meeting in Davos, Switzerland, Fink said “I see possibilities” for an increase beyond the next 12 months, but he noted that this scenario was not his “baseline forecast.”
Fink noted several factors that could contribute to persistent inflation, including a labor shortage and rising wages. “We’re going to have a labor shortage, and that’s going to push wages up,” he explained. While higher wages benefit workers, Fink warned about the inflationary pressures that such increases could create.
Fink also pointed out that potential material shortages from large-scale infrastructure and energy transitions could further fuel inflation. “We are a little bit complacent that inflation could hit us again,” he warned.
Fink, assessing the bond market, noted that the yield curve had normalized after a period of high inflation and an inverted curve. However, he warned that forward-looking inflation expectations could lead to a much steeper yield curve.
Fink also voiced concerns about rising global deficits and debt levels, which could increase the cost of financing. “Rising budget deficits around the world and the cost of financing those deficits will increase,” he said, adding that these factors could push up long-term bond yields.
Assessing the current state of the economy, Fink described the economy as “very strong,” citing solid corporate performance and positive labor statistics. He suggested the Fed could hold off on rate cuts in the near term but left the door open for future increases.
“The next few months of data are going to be very important,” Fink said. “I’m not worried about the short-term moves, but could they turn around and go up again in the next year or so? Probably. I’m not calling for it, but I see the possibilities.”
*This is not investment advice.
