Larry Fink Ponders If US Economy Is Pointing to Rate Hikes Later

(Bloomberg) — The strength of the US economy is making BlackRock Inc. Chief Executive Officer Larry Fink wonder if the Federal Reserve may have to resort to increasing interest rates later after easing in the short term.

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“I am not calling for that,” Fink commented on a panel at the World Economic Forum in Davos, Switzerland on Friday. “I see probabilities” of a rate hike at some point beyond the next 12 months or so, but he cautioned that such a scenario wasn’t his “core prognostication.”

“The economy is very strong,” he said. “It was very strong in the fourth quarter and the evidence that we are hearing from different corporations is that business is strong already in the first quarter.”

In the short term, the Fed still has room to cut, Fink said, adding that economic data over the next few months will help determine that. The bond market is signaling that inflation may be “higher than we think” and with labor shortages driving up wages, the yield curve is likely to get steeper, he added.

On Europe, Fink said that the continent was being too pessimistic about its economic outlook. “I mean, I see all the problems in Europe but I do believe the pessimism is too large,” Fink said. “I believe it’s probably time to be investing back into Europe.”

However, there are many things Europe first needs to do, Fink said. “It needs a banking union and a capital markets union,” Fink said. “Europe is a myth. It’s a beautiful myth, but it’s not working,” Fink said. “To be optimistic, you have to admit your problems.”

Other panelists included International Monetary Fund Managing Director Kristalina Georgieva, European Central Bank President Christine Lagarde, Singapore President Tharman Shanmugaratnam and Saudi Arabia Minister of Economy and Planning Faisal Alibrahim.

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