BlackRock CEO Larry Fink said President Donald Trump’s efforts to free up capital in the private sector could have unintended consequences that would hurt the stock market.
“I’m cautiously optimistic. That said, I have scenarios where it could be quite bad,” Fink said Thursday on CNBC’s “Squawk Box” from the World Economic Forum in Davos, Switzerland. “I believe if all this private capital is unlocked, we will have tremendous growth. At the same time, some of this will create new inflationary pressures. I really believe that this is probably the risk that is not being taken into account. I think the bond market is going to tell us where we’re going.”
The 72-year-old chief of the world’s largest asset manager said much will depend on how quickly the private sector can put capital to work. Trump has already touted massive private sector pledges to spend in the US. The most recent example is the Stargate joint venture, where SoftBank, OpenAI and Oracle would immediately invest $100 billion in the country’s artificial intelligence infrastructure. According to the plans, the project would eventually require a total investment of $500 billion.
“There are very significant inflationary pressures that we all need to be aware of,” Fink said. “And depending on how this plays out, there’s a scenario where we’re going to have much higher interest rates because of inflation. And that’s going to have a very negative impact on the stock market.”
Fink said there is a possibility that 10-year Treasury yields could retest the 5% level and even reach 5.5% if inflation reaccelerates in a meaningful way. If that happens, Fink says, it would “shock” the stock market.
The 10-year bond yield last traded at 4.62%.
