BlackRock: The Fed won't cut rates as much as markets expect this year

The Federal Reserve will not cut interest rates this year as much as markets expect because "embedded inflation" is too high, Larry Fink, CEO of Blackrock, the world's largest asset manager, told a conference call yesterday in Saudi Arabia, writes CNBC.

Fink thinks the U.S. central bank will only cut rates one more time in 2024, compared to the two cuts the other panelists had estimated. "I think it's fair to say that we will have at least a 25 (basis point) reduction. That being said, I think we have the biggest "built-in inflation' in the world that we've ever seen," said the Blackrock CEO.

In his opinion, the approach of the government and the policy of the United States are inflationary in nature. "Immigration, our onshoring policies (relocating companies' businesses to their country of origin), all of this (...) no one asks the question "at what cost". From a historical perspective, I would say that we were a more consumer-oriented economy, the cheapest products were the best, being also the most progressive way of doing politics," said the Blackrock boss.

According to CNBC, Fink's reference to onshoring highlights the United States' efforts in recent years - particularly in the wake of the Covid-19 pandemic - to reduce reliance on foreign supply chains and encourage investment to create jobs at home. especially in manufacturing. The Biden administration's measures support those efforts, but they may contribute to higher commodity prices because Americans are paid more than workers in many offshore destinations, such as China. "I think we have government policies that have inflation built in. So, we're not going to see interest rates as low as people are predicting," Fink said.

The Federal Reserve cut its benchmark rate by 50 basis points in September, signaling a turning point in the management of the US economy and inflation. In reports late last month, strategists JP Morgan and Fitch Ratings forecast two more rate cuts by the end of 2024 and expect cuts to continue through 2025.

In September, the US Consumer Price Index, a key gauge of inflation, rose 2.4% month-on-month, down from August's 2.5%, showing that price increases are slowing. Also, in September, inflation had its lowest level in dynamics since 2021, according to CNBC.

Fink's view that the Fed will not raise interest rates twice this year was shared by a group of CEOs from Wall Street giants such as Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered and State Street , who spoke in another panel at the same event in Saudi Arabia, the American publication also writes.