Larry Fink says the Fed won’t cut interest rates as much as markets expect this year

The U.S. Federal Reserve won’t cut interest rates as much as markets expect because “embedded inflation” is too high, Blackrock CEO Larry Fink said Tuesday, speaking at a CEO-studded panel in Riyadh, Saudi Arabia.

Fink, whose mammoth fund oversees over $10 trillion in assets, sees one rate reduction before the end of this year, compared to the two trims that other market participants have forecast.

“I think it’s fair to say we’re going to have at least a 25 (basis-point cut), but, that being said, I do believe we have greater embedded inflation in the world than we’ve ever seen,” Fink said at a panel during Saudi Arabia’s annual flagship investment conference, the Future Investment Initiative.

“We have government and policy that is much more inflationary. Immigration — our policies of onshoring, all of this — no one is asking the question ‘at what cost.’ Historically we were, I would say, a more consumer-driven economy, the cheapest products were the best and the most progressive way of politicking,” he noted. 

Fink’s mention of onshoring highlighted the U.S.’s efforts in recent years — particularly in the wake of the Covid-19 pandemic — to reduce dependence on foreign supply chains and to invest in domestic jobs, particularly in manufacturing. The Biden administration’s legislation, such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, have pushed those efforts forward. Those changes can contribute to increases in the price of goods, as American workers are paid more than those in many offshore manufacturing destinations like China.

“Today, I think we have governmental policies that are embedded inflationary, and, with that being said, we’re not gonna see interest rates as low as people are forecasting,” Fink said.

The Fed cut its benchmark rate by 50 basis points in September, signaling a turning point in its management of the U.S. economy and in its outlook for inflation. In late-September reports, strategists at J.P. Morgan and Fitch Ratings predicted two additional interest rate cuts by the end of 2024, and expect such reductions to continue into 2025.

America’s consumer price index, a key inflation gauge, was up 2.4% in September compared to the same period in 2023, according to the U.S. Bureau of Labor Statistics. That figure is a tick down from the 2.5% print of August, meaning that price growth slowed. The September reading was also the smallest annual one since February 2021.

A group of CEOs speaking on a subsequent panel at the event — which included Wall Street hegemons such as the CEOs of Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered and State Street — were asked to raise their hand if they thought two additional rate cuts would be implemented by the Fed this year. No one put their hand up.