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BlackRock CEO Larry Fink says the Fed will have to hike interest rates now

In this post:

  • Larry Fink says the Fed might need to hike rates again in the long term as the U.S. economy stays strong.
  • He warns inflation and labor shortages could push the bond yield curve higher, signaling persistent pressure.
  • Larry thinks Europe’s economic pessimism is overblown but says reforms like banking and capital unions are critical.
  • The Fed is expected to hold rates steady for now, despite Trump demanding immediate cuts.

Larry Fink, the CEO of BlackRock, raised eyebrows at the World Economic Forum in Davos, Switzerland, on Friday. Speaking on a panel with some of the world’s top economic leaders, Larry pointed to the strength of the U.S. economy as a reason the Federal Reserve might eventually need to raise interest rates again—though not anytime soon.

“The economy is very strong,” Larry said. He pointed out how strong activity in the fourth quarter of last year has spilled into 2025, with corporations reporting strong business in the first quarter.

Larry wasn’t predicting a rate hike outright, but he said he sees “probabilities” for one beyond the next 12 months. Still, he made it clear this wasn’t his “core prognostication.”

Larry believes the Fed could still cut rates in the short term if economic data in the coming months support such a move. But he warned that inflation might be higher than expected, and with labor shortages driving up wages, the bond market’s signals could mean the yield curve steepens further.

Too much pessimism in Europe

Larry turned his attention to Europe, where he thinks the outlook isn’t as bleak as many believe. “There’s too much pessimism on Europe,” he said during the same panel discussion. He added, “I believe it’s probably time to be investing back into Europe.”

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Eurozone business activity has started the year on a positive note, with services stabilizing and the downturn in manufacturing easing, according to a survey released Friday. Larry acknowledged Europe’s issues but called for a reality check.

“Europe is a myth. It’s a beautiful myth, but it’s not working,” he said, referring to the need for a banking union and a capital markets union. “To be optimistic, you have to admit your problems,” Larry added.

International Monetary Fund Managing Director Kristalina Georgieva and European Central Bank President Christine Lagarde, who joined Larry on the panel, agreed on the need for Europe to mobilize capital more effectively.

Lagarde emphasized that Europe must focus on keeping its talent and savings within the region, calling the global challenges an “existential threat.” She added, “If European leaders can get their act together and respond to this existential threat, there is huge potential for Europe to respond to the call.”

Fed holds firm as Trump pushes for rate cuts

The Federal Reserve is expected to hold interest rates steady at its upcoming meeting, even as President Donald Trump ramps up his demands for rate cuts. On Jan. 23, Trump said he’ll “demand that interest rates drop immediately,” criticizing the Fed’s pace in adjusting its policy.

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The central bank has already raised its benchmark rate by 5.25 percentage points between 2022 and 2023 to fight inflation, which by the way still remains above its 2% target.

Larry weighed in on inflation, saying he isn’t overly concerned but acknowledged the challenges it presents. He pointed to the U.S. Treasury yield curve as a barometer of market expectations for higher inflation and fiscal deficits.

The 10-year Treasury yield, which is trading at 4.64%, has climbed from around 3.60% in September. “I can see a scenario—I’m not calling for it—where we see 5.5% on the 10-year (U.S.) yields,” Larry said.

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