A top investment management firm warned that the United States could see “real economic pain” before the Federal Reserve “changes course” in its efforts to combat rising inflation.
BlackRock addressed the issue of rising costs in its 2022 Midyear Global Outlook report that was issued Monday. The company wrote that “major spending shifts” and “production constraints,” rather than excessive demand, have been driving inflation, citing the COVID-19 pandemic as the “root” of those constraints and Russia’s war in Ukraine as a factor that worsened them.
“Major central banks are jacking up policy rates in a rush to get back to neutral levels that neither stimulate nor restrain activity,” the report read. “The Fed is planning to go further, pencilling in rate hikes that go well intro restrictive territory to near 4 percent in 2023. The problem: Rate hikes don’t do much against today’s inflation. The Fed has to crush activity in the rate-sensitive part of the economy to bring inflation back to its 2 percent target. Yet the Fed has so far failed to acknowledge this.”