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BlackRock CEO Larry Fink Sees Potential for ‘Big Shock’ From Inflation

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What You Need to Know

  • Fink said many investors are underestimating a potential inflation spike because they've only known inflation to decline.
  • Central banks may have to reassess their policies if higher prices become a concern, said Fink.
  • But a Fed rate hike during stimulus spending would be "odd."

BlackRock Inc. Chief Executive Officer Larry Fink 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,” Fink said at a virtual event hosted by Deutsche Bank AG on Wednesday. “So this is going to be a pretty big shock.”

Concern about higher inflation has already seeped into U.S. markets with the cost of goods including lumber and steel rising this year. Fink began his career at First Boston Corp. in 1976, in a period of elevated inflation. The U.S. Consumer Price Index touched a high of 14.8% in March 1980.

Fink, who now runs the world’s biggest asset manager, added that central banks may have to reassess their policies if higher prices become a concern. The Federal Reserve has committed to keep rates near zero in the near term and has indicated it will tolerate inflation above its 2% target to make up for the period where it dipped below that level.

If the Fed were to reconsider that, it could seem discordant with separate fiscal stimulus, Fink said. President Joe Biden has proposed additional measures to stimulate the U.S. economy, including a $1.7 trillion infrastructure spending plan.

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“That would be pretty odd, raising interest rates at the same time we do this giant fiscal stimulus,” Fink said.

Prices may also rise as companies adapt to the realities of climate change, he said. New York-based BlackRock has advocated for companies disclosing how they plan to adapt to a net zero greenhouse gas emissions economy by 2050.

“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?”

–With assistance from Alex Tanzi.

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