Larry Fink, the CEO of US$9.6 trillion asset manager BlackRock, has predicted that inflation will likely remain elevated for a number of years.
In an interview with Bloomberg late last week, Mr Fink suggested that inflation was not transitory and was being primarily driven by global supply chain issues.
“Demand right now in our economy is about equivalent to the demand that we saw pre-COVID, and so we’re witnessing all these supply shocks and that’s creating these attended price increases,” he said.
“It’s been aggravated now obviously by COVID and lockdowns in different parts of the world where we’re manufacturing goods. It has been further aggravated by the Ukraine-Russia war where we have supply shocks.”
The BlackRock chief also indicated that, in his view, much of the inflation has been generated by large policy changes that have taken place in the United States.
In terms of the role of the Federal Reserve, Mr Fink said that he didn’t blame the US central bank for the current situation.
“It’s a type of inflation that I don’t believe the Federal Reserve has the policy or the tools to do much with it right now,” he said.
On the outlook for the remainder of this year, Mr Fink said that it was unlikely that markets would stage a recovery.
He pointed out that the recalibration of growth stocks has made up much of the downfall to date but also warned that major indexes were masking some of the problems due to the rises seen for energy and commodity companies.
“If you look at the volatility in the market and the spread between winners and losers, it’s pretty broad this year,” he said.
“We’ve taken out a lot of those gains that we saw during the COVID years, during the two years where we were changing our lives and we were emphasising different companies, and now we’re seeing the reverse impact of that.”
Looking further ahead, Mr Fink said he could see scenarios where the situation worsens dependent on future earnings.
“But I could also see a scenario where we’re going to be muddling along for the next year or two right around this level. Maybe up 5 per cent, down 10 per cent, but we’re going to be in this range bound area until we have better information,” he said.
“The one thing I will say with total certainty, we’re going to be living with more uncertainty.”
BlackRock has not observed major asset allocation changes among its investors, Mr Fink said, but the firm did record a significant increase in bond ETF purchases during May.
“We are going to have bouts of fear, which is going to bring the markets, and a little more confidence going on forward,” added Mr Fink.
