BlackRock CEO Says Inflation Higher for Longer But Some People Will Benefit

Tom Ozimek
By Tom Ozimek
March 27, 2024Business News
BlackRock CEO Says Inflation Higher for Longer But Some People Will Benefit
Andrew Ross Sorkin speaks with BlackRock CEO Larry Fink during the New York Times DealBook Summit in the Appel Room at the Jazz At Lincoln Center in New York on Nov. 30, 2022. (Michael M. Santiago/Getty Images)

BlackRock CEO Larry Fink is predicting that inflation will be higher than most people believe while arguing that much of that is actually a good thing because it also means higher wages, and more generally downplaying price pressure fears as overblown.

“Well, when you and I were young, we actually had worse inflation” than the young people of today, Mr. Fink told CNBC’s “Mad Money” host Jim Cramer in a March 26 interview, after Mr. Cramer said he’s heard many young people complaining that they’ve been hammered by the recent few years of high inflation.

“They feel that they can’t afford to retire,” Mr. Cramer said. “They will work to die because they have no money. They have huge college tuition.”

“And no one tells them how to put money away,” he continued. “And they would tell you, ‘How? What money? Inflation has destroyed me.'”

“‘I’m 23, and inflation has already had the best of me,'” Mr. Cramer added.

Mr. Fink replied by suggesting that young people’s fears are overblown and that they aren’t seeing the issue in the right perspective.

“Well, when you and I were young, we actually had worse inflation,” Mr. Fink said, adding that back then “we were able to figure it out.”

“We had Jimmy Carter inflation, Nixon inflation,” Mr. Cramer responded in agreement, referring to two memorable bouts of inflation—with peaks of 12.2 percent in November 1974 and 14.6 percent in March 1980.

By contrast, inflation hit a recent peak of 9 percent in June 2022, with the cumulative increase in prices since President Joe Biden took office amounting to roughly 18 percent (though some alternative models say it’s over 30 percent).

Mr. Fink then said he thinks “we’re going to get by this [period of high inflation]” and that he’s “bullish” on the young people of today because he thinks they’re smarter than the youth of yesteryear and have a more “global understanding of the world.”

‘Higher Inflation Than Most People Believe’

Much like he did in his annual letter to shareholders, Mr. Fink basically argued in the interview that economic growth is the fix for the problem of inflation.

In the letter, he discussed what he called “energy pragmatism,” which involves investment in both energy security (via more production of energy, including fossil fuels) and decarbonization.

“You genuinely believe, we can grow out of our problem, which people don’t think we can,” Mr. Cramer said in the interview.

“Right,” Mr. Fink replied. “This is a phrase that I have heard across the world, that we have to be decarbonizing at the same time and we have to continue to be making sure that we have energy at an affordable level. And so we need to have the hydrocarbons today.”

“That’s the future” and it will involve massive job creation, Mr. Fink argued, while calling for more private capital to be put to work on energy infrastructure and other projects.

Mr. Cramer countered by saying that younger generations feel like they don’t have any money to invest, which begs the question of where all this capital is supposed to come from.

“There is a belief that, with no costs coming down, with food being so expensive, with college tuition leaving a lot of debt, that it’s almost foolish to try to save,” Mr. Cramer said.

“Look, life is full of trade-offs,” the billionaire investment fund chief replied. “If you don’t have enough for your rent, obviously, you’re not going to save for retirement.”

“They’re going to work until they die, Larry,” Mr. Cramer said. “They have no choice.”

Mr. Fink then said that there’s a hidden blessing here, namely that people are living longer and most people don’t do backbreaking jobs, so people can work longer. Much like he did in his letter to shareholders, the BlackRock CEO hinted that raising the retirement age would be a good idea.

He then circled back to inflation, arguing that the “lucky era” of his and Mr. Cramer’s youth was marked by high economic growth and that this needs to be replicated again, in part thanks to innovation.

“If we start really building on our infrastructure in our country, if we start working on digitization and decarbonization, we’re going to create a lot of jobs. And wages are going up. This is why, as you know, I have been talking about higher inflation for longer, stickier inflation,” Mr. Fink said.

The BlackRock CEO has talked before about the persistence of inflation, for example in June 2023, when he predicted that inflation would stay stuck between 4–5 percent for much longer than expected, in part due to a reversal of globalisation and in part due to government stimulus spending.

“I still believe we’re going to have higher inflation than most people believe,” he told Mr. Cramer on Tuesday. “And much of that is going to help those people who are worried.”

“I mean, wage inflation is continuing,” he added, basically arguing that in a high-inflation environment, the young people who are complaining about elevated price pressures may well be experiencing wage growth that outpaces inflation.

Wages Outpacing Inflation

Data on weekly and hourly earnings show that, starting in the fourth quarter of 2022 wages have grown faster than inflation. In the fourth quarter of 2023, the latest period of available data, wages grew 2.2 percent faster than inflation, though that’s no consolation for people on fixed incomes, like retirees.

However, as suggested in Mr. Fink’s letter to shareholders (which bears the headline “Time to rethink retirement”), raising the retirement age would keep people working longer and so presumably put off the pain from high inflation a bit longer.

While he didn’t specify in his letter what he thinks a more appropriate retirement age should be, he referenced the Dutch case, where policymakers decided to gradually raise it in line with life expectancy.

In 2022, the retirement age in the Netherlands was 66 years and 7 months, which in 2024 has been raised to 67 years, and by 2028 will rise to 67 years and 3 months.

The idea of raising the retirement age has also been raised by a number of U.S. lawmakers, including the Republican Study Committee (RSC), which is a task force made up of the biggest group of conservatives in the House.

The RSC floated raising the retirement age as part of a broader proposal to prevent cuts to Social Security benefits amid projections that the main Social Security fund will run out of money in around 10 years.

From The Epoch Times

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