According to every career economist, market strategist and Fed lackey, inflation is transitory. The most important man on Wall Street disagrees.
Speaking at a virtual event hosted by Deutsche Bank, Blackrock CEO Larry Fink who manages more money than the Fed (over $9 trillion at last check) countered soothing talk that soaring prices are here and gone tomorrow, and said that investors may be underestimating the potential for a spike in inflation.
“Most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years. So this is going to be a pretty big shock”, Fink said, his warning falling on deaf ears.
Alas, unlike the Fed, Fink actually know what he is talking about: he began his career at First Boston Corp. in 1976, in during runaway US inflation, with the Consumer Price Index hitting a high of 14.8% in March 1980, and forcing Volcker to hike rates as high as 20%.
Fink added that central banks may have to reassess their policies if higher prices become a concern, but as even the shoeshine boy knows by now, the Fed’s mantra is that “inflation is transitory” and thus the Fed has absolutely no idea what to do if it loses control of inflation as the alternative is the biggest market crash in history.
Instead, to keep markets stable, the Fed has vowed to keep rates at zero for at least another two years. If the Fed were to reconsider that, it would be incompatible with the massive fiscal stimulus unleashed by the US, Fink said. Joe Biden has proposed additional measures to stimulate the U.S. economy, including a $1.7 trillion infrastructure spending plan. All that stimulus requires rock-bottom interest rates.
“That would be pretty odd, raising interest rates at the same time we do this giant fiscal stimulus,” Fink said.
Of course, being Blackrock, Fink could not somehow try to tie soaring prices to global warming instead of – say – the trillions in newly created funds injected into the market, and did just that saying that prices may also rise as companies adapt to the realities of climate change:
“If our solution is entirely just to get a green world, we’re going to have much higher inflation, because we do not have the technology to do all this, yet,” Fink said.
“That’s going to be a big policy issue going forward too: Are we going to be willing to accept more inflation if inflation is to accelerate our green footprint?”
In short: if you can no longer afford to eat or rent, take one for the team. As for Larry, we doubt he will stop flying private or sell all of his sea-level mansions due to the imminent melting of the north pole.