Black Rock CEO Larry Fink weighed on the probability of a recession and the risk of the US government defaulting on its debt.
Fink told Liz Claman and Charlie Gasparino during “Claman’s Countdown” on Friday that “we are not in a recession yet,” but “there is a high probability that we will enter one.” He went on to point to several observed phenomena that occur in the economy.
“We’re seeing the housing market really, you know, crash from the peak levels we saw last year,” he said. “We’re seeing car sales starting to drop considerably, and we’re starting to see more and more consumers borrow against their retirement.”
He explained that consumers had “huge reserves of money” during the peak of the COVID-19 pandemic, adding that they did not commute to work and “received some federal payments.” That, he said, has “mostly subsided.”
“Right now, we’re at this point where we’re not in a recession, but if the path continues in this direction, and I think it will, we’re going to be in a recession.” mild recession”, he continued. “There is absolutely no reason for us to be in a very deep recession. There is too much going on in our economy to be in a deep recession.”
Fink also said he thought Europe would not fall into “so deep” a recession due to stabilizing energy prices.
Later in the interview, the Black Rock CEO offered his thoughts on whether there is a risk of the US government defaulting on its debt.
“Well, if we saw the lack of function within Congress, if we don’t have a Congress trying to find a way forward, of course we have that risk,” he said. “I just urge all legislators to focus on accountability. We owe our creditors money.”
The United States has more than 31.3 trillion dollars in national debt, according to the latest data from the Treasury Department. Its size is “astounding” and it poses a “big risk” if the US “fails to act responsibly” and reassure its creditors, Fink said.
“We could all talk about what America’s budget should look like. We could all talk about how we can reduce our deficits in the long run,” he continued. “But what used to be considered standard behavior was just, you know, raising the debt limit and now it’s become politicized. That’s always a big fear and a big problem.”
Later, Claman asked Fink if he thought the Federal Reserve you would have to pause or lower interest rates earlier than your current schedule.
The Federal Reserve raised rates multiple times in 2022, including four consecutive 75 basis point hikes and, most recently, a 50 basis point hike. In the minutes of the Fed’s December meeting, policymakers indicated that projected rates could rise as high as 5.1% in 2023, as previously reported by FOX Business.
The BlackRock CEO said the central bank is “trying to be apolitical,” adding: “Obviously, if actions by Congress create a more dramatic threat of a deeper recession, then they will have to react to that action.” That would be a “very bad reaction in the long run,” which could result in more inflation, he argued.
He said the Fed should take action based on the data.
“If the economy turns around due to actions by Congress and we have a default, then the Federal Reserve will have to do whatever is appropriate to stabilize the economy.”
He went on to reiterate his point about US debt liability.
“If you think about the benefits of being the world’s currency, which we are, we all energy payments are paid in dollars. That’s because we are the reserve currency,” he said. “We need to be leaders in making sure that the reserve currency is the right currency, and we deserve that right.”
Fink said that “playing Russian roulette, whatever you want to call it” in relation to the debt ceiling is “something that is inconceivable” to him. However, the ceiling must be addressed, he said.