BlackRock predicts U.S. inflation above 2% in coming years

According to BlackRock strategists, traders’ hope for a sharp slowdown in inflation is futile.

In the strategists' view, the presence of weakening price pressures cannot be denied. However, they strongly disagree with the forecasts that say inflation will fall to the 2% target level set by the U.S. Federal Reserve (Fed). 

Scott Thiel, one of BlackRock's strategists, believes that due to several factors (labor shortages, higher wages and falling inventories), the inflation rate won’t fall to 3.5% until the end of next year. That’s quite different from the one-year consumer price index (CPI) at 2.38% and the 10-year breakeven at 2.14%.

Thiel noted that the target level was too low. In his view, the market should always be prepared for volatility in the CPI's numbers. He also added that reducing inflation from 7% to 5% would be easier than reducing from 5% to 3%.

BlackRock predicts that as early as the first half of next year, the Fed will raise rates to 5% in an attempt to prevent the inflation rate from fixing at 3%.