Strong US Economy May Force Fed to Hike Rates Later, Says BlackRock CEO Fink

Larry Fink, BlackRock Inc.'s Chief Executive Officer, is cautiously optimistic about the US economy, suggesting that the Federal Reserve may need to raise interest rates later down the line despite near-term cuts, Bloomberg reports.

Speaking at a panel discussion at the World Economic Forum in Davos, Switzerland, Fink acknowledged that while he isn't actively predicting a rate hike, he sees a significant probability of such a move beyond the next 12 months. He emphasized that his "core prognostication" remains unchanged.

"The economy is very strong," Fink stated. "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."

Fink acknowledged that the Fed still has room for near-term interest rate cuts, with the next few months of economic data likely to be crucial in determining the extent of such cuts. However, he noted that the bond market is signaling that inflation may be "higher than we think" and that wage increases driven by labor shortages are likely to steepen the yield curve.

In contrast to his cautious outlook on US monetary policy, Fink expressed optimism about Europe's economic prospects, despite acknowledging the continent's challenges. He argued that the prevailing pessimism surrounding the European economy is unwarranted.

"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, Fink also highlighted several key reforms Europe needs to implement before realizing its full economic potential. "It needs a banking union and a capital markets union," he stated. "Europe is a myth. It's a beautiful myth, but it's not working. To be optimistic, you have to admit your problems."