Inflation has likely peaked, but the Fed won't be able to get it back to the 2% target without causing significant damage, BlackRock vice chairman says
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- Inflation has likely peaked and will ease, BlackRock's Philipp Hildebrand said on Tuesday.
- But the Fed and other central banks will cause a lot of damage by trying to reign it back down to 2%.
- "We're not going to get to 2% without significant damage to the real economy," he said.
Inflation has likely peaked, but that doesn't mean the Federal Reserve and other central banks can reign prices back into their target levels without causing significant economic damage, BlackRock vice chairman Philipp Hildebrand said in an interview with Bloomberg on Tuesday.
Hildebrand, who was formerly the Swiss governor of the International Monetary Fund, said that lowering prices would come at a hefty cost for the central bank, as the interest rates necessary to lower inflation would be very high.
"We're not going to get to 2% without significant damage to the real economy," he said, noting that the Fed's inflation target could land the country in "deep recession territory."
Hildebrand has been skeptical that the central bank is capable of pulling off a soft landing, adding he believed the days of "the Great Moderation" — the policy of lowering inflation to keep the economy stable — were over. Although the Fed kept inflation at a steady 2% for most of the prior decade, Hildebrand thinks that outcome is unlikely in this era, given that inflation is currently being driven by supply constraints rather than demand.
While he believes inflation would likely ease from its all-time high of 8.6% in May, the former central banker emphasized the US was far from lowering interest rates, let alone waving off recession fears.
"The cost of bringing inflation back to 2% is now very very high," he said, speculating that the Fed faced a hard decision of either bringing inflation down at any cost, or tolerating high prices for the time being.