What America’s CEOs are saying on inflation: We’re going to charge you more

In this photo illustration, hands are seen counting US $100 bills.
In this photo illustration, hands are seen counting $100 bills.

  • Inflation, or increased pricing for goods, is on the rise as the economy reopens.
  • Biden’s administration and the Fed says the price increases should be temporary.
  • But CEOs of major companies are saying that higher prices could persist.
  • See more stories on Insider’s business page.

The country is reopening and the economy is recovering from the pandemic, and while COVID-19 cases are down, prices for goods and services are on the rise. President Joe Biden’s administration says this phenomenon, known as inflation, is not a cause for concern, but CEOs of major companies are warning that they’ll probably keep raising prices.

The Bureau of Labor Statistics’ monthly Consumer Price Index release showed that inflation in June was much higher than expected, with prices surging 0.9% over May, the highest month-over-month inflation rate since April 2008’s 1.0% increase. It was fueled by big price increases for used cars, beef, and pork, and the government insists it should cool down soon.

Labor Secretary Marty Walsh told Insider in early July that he’s not worried about the increase in prices for goods, especially given that wages also increased in June.

“The one thing that we are not concerned about is … inflation,” Walsh told Insider. “We’re still in transition, so we’re not concerned about that. So I think anytime we can push for higher wages – and the president’s been very vocal on this – that’s a good thing for people.”

Treasury Secretary Janet Yellen said in May that the high prices should only last through the end of this year, and Biden said during a June press conference that the “overwhelming consensus” is that inflation should “pop up a little bit and then come back down” – similar to the consensus from America’s central bank, led by Federal Reserve Chair Jerome Powell.

The economics field is not close to that consensus. Former Treasury Secretary Larry Summers has pointed to Biden’s $1.9 trillion stimulus as the “least responsible” fiscal policy in 40 years, one that could potentially trigger the dreaded hyperinflation. Increasingly, executives are saying that price increases are here to stay. Here’s what else they’re saying:

JPMorgan Chase CEO Jamie Dimon

JPMorgan CEO Jamie Dimon.
JPMorgan CEO Jamie Dimon.

JPMorgan Chase CEO Jamie Dimon said during an earnings call on July 13 that inflation “could be worse than people think.”

“I think it’ll be a little bit worse than what the Fed thinks,” Dimon said. “I don’t think it’s only temporary.”

In June, Insider reported that Dimon said the bank was stockpiling $500 billion in cash in anticipation of higher inflation, during which he expressed the same concerns with the nature of inflation, in that it will be more persistent than what people are saying.

JPMorgan did not immediately respond to Insider’s request for comment.

 

BlackRock CEO Larry Fink

GettyImages 480950078

Larry Fink, the CEO of investment management corporation BlackRock, reiterated Dimon’s concerns on the nature of inflation in a CNBC interview on July 14.

“[Policymakers] are saying jobs are more important than consumerism,” Fink said. “That is going to probably lead to systematically more inflation.”

Biden has consistently touted job growth as a primary achievement of his administration so far, and Republican lawmakers have even cut off unemployment benefits early in an effort to incentivize people to return to work.

But Fink said that move takes the focus away from consumers, causing large-scale price increases.

“I’m hearing from every CEO that they have huge price increases, and they’re passing them on across the board, here in the United States and in Europe,” Fink said.

BlackRock did not immediately respond to Insider’s request for comment.

PepsiCo CFO Hugh Johnston

FILE PHOTO: Bottles of Pepsi are pictured at a grocery store in Pasadena, California, U.S., July 11, 2017.   REUTERS/Mario Anzuoni/File Photo
FILE PHOTO: Bottles of Pepsi are pictured at a grocery store in Pasadena

To help counter the effects of inflation, some business leaders are explicitly saying they’re raising prices for their goods on consumers. PepsiCo’s CFO Hugh Johnston is one of them.

“Is there somewhat more inflationary pressures out there? There is,”  Johnston said on an earnings call on July 13. “Are we going to be pricing to deal with it? We certainly are.”

The CEO of industrial supplies company Holden Lewis echoed Johnston on an earnings call the same day, saying that “based on what cost is doing,” the company will have to increase prices on consumers.

Lewis said, though, that a previous price increase the company made was received “fairly well,” suggesting consumers might not be discouraged by increased prices. 

Pepsi did not immediately respond to Insider’s request for comment.

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BlackRock’s Larry Fink doesn’t believe inflation is going to be transitory – and says bitcoin demand from his clients is very low

Larry Fink
Larry Fink.

  • BlackRock’s Larry Fink is not on the side of the “inflation is transitory” debate.
  • “I do not believe inflation is going to be transitory,” he said, after consumer prices rose at their fastest since 2008.
  • BlackRock clients aren’t interested in bitcoin and are more driven by long-term returns, he said.
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BlackRock CEO Larry Fink told CNBC on Wednesday he doesn’t believe the surge in inflation gripping the world will be fleeting, and the way the Federal Reserve and other central banks navigate this environment will have great significance.

“I do not believe inflation is going to be transitory,” he told CNBC’s “Squawk Box” after consumer prices increased 0.9% in June, far higher than the 0.5% consensus estimate of economists polled by Bloomberg.

Most Wall Street economists and the Fed have stuck to the argument that rising prices will indeed be short-lived.

While Fink said he expects inflation to be more “systematic” over time, he is worried about the delta variant of COVID-19 slowing down parts of Asia and further disrupting supply-chain shortages.

“We are seeing a real disconnect between the countries that have been very vaccinated and moving forward on vaccination, and the countries that have been late in vaccination, but focusing more on isolation,” he said. “Isolation worked before we had a vaccination.”

That could lead to uneven recovery across the world. But with record amounts of monetary stimulus and cash still waiting to be put to work, the growth trajectory is eventually pointing upward, he said.

“I believe the trend line is still going to be upward, maybe not as fast, maybe it’s going to be very moderate for the next six months as we digest how the world is able to handle the Delta variant and the speed in which vaccinations occur throughout the world,” he said.

Fink, who has previously said cryptocurrencies could become a great asset class, said BlackRock is seeing low investor demand for bitcoin.

“That is just not part of the focus on retirement and long-term investors,” he said about demand for cryptocurrencies. “We see very little in terms of investor demand on those types of things, but quite frankly (many) may not come to BlackRock for that type of demand.”

He added BlackRock investors are more focused on building long-term returns over a long period of time, and “we don’t have those conversations.”

Read More: BANK OF AMERICA: Buy these 22 stocks set to completely crush earnings expectations as volatility around reports creates a stock-picker’s paradise

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Here are 9 fascinating facts to know about BlackRock, the world’s largest asset manager popping up in the Biden administration

Larry Fink
BlackRock Chief Executive Larry Fink was reportedly under consideration by 2016 presidential candidate Hillary Clinton to run the Treasury Department.

  • The world’s biggest fund manager, BlackRock, has become an increasingly influential player in Washington, DC. 
  • The firm’s global head of sustainable investing is set to head Biden’s National Economic Council, and a former advisor to BlackRock Chief Executive Larry Fink will serve as a top official at Treasury.
  • Here’s a rundown of fast facts you need to know about BlackRock. 
  • Visit Business Insider’s homepage for more stories.

BlackRock, the world’s largest investment manager, has become an increasingly influential Wall Street player in Washington, DC as a poster child of the revolving door between finance and politics.

The firm has hired notable policy-makers over the years, and two executives with the New York-based asset manager on their resumes are now set to hold prominent roles in President-elect Joe Biden’s cabinet.

BlackRock investment executive Brian Deese is set to head Biden’s National Economic Council, effectively serving as his top advisor on economic matters. Biden has also tapped Adewale “Wally” Adeyemo, a former chief of staff to BlackRock chief executive and longtime Democrat Larry Fink, to serve as a top official at the Treasury Department.

But unlike Goldman Sachs, a household brand name synonymous with executives leaving finance to go shape public policy, BlackRock isn’t as well-known to people outside the investment industry. 

Here’s a rundown of fast facts you need to know about the firm. 

Read more: The US government has pitched a policy that would allow private equity into your retirement fund. BlackRock is salivating at the possibility – here’s how the $7 trillion manager would benefit.

1. BlackRock controls $7.8 trillion, making it the largest money manager in the world.

BlackRock manages a staggering $7.8 trillion in other people’s money. That’s more than the gross domestic product of every country in the world, except for the US and China. 

For its largesse in investment management, it’s a new firm by Wall Street institution standards. BlackRock was founded in 1988 by Fink, who also serves as the chairman, and seven others, including BlackRock President Robert Kapito and Vice Chairman Barbara Novick.

BlackRock’s makes most of its money handling investments for outside clients, mostly institutions like public pension plans, endowments, and foundations. 

As of September, 60% of its overall assets under management are for institutional investors, most of which is products linked to stock markets. It also has a $222 billion alternative investments business, managing products like private equity, private credit, and hedge funds.

Read more: Meet the 17 BlackRock power players carrying out CEO Larry Fink’s vision to turbocharge private equity and alternative investments growth

2. It runs a massive technology platform that oversees at least $21.6 trillion in assets.

In 1999, BlackRock started selling Aladdin, which analyses and tracks investors’ portfolios, which can help professional money managers spot risks. Today, it is a juggernaut widely used in the money management industry and beyond.

One of the definitive descriptions of Aladdin and all its connections, a February report in the Financial Times, detailed its sheer scale:

“Vanguard and State Street Global Advisors, the largest fund managers after BlackRock, are users, as are half the top 10 insurers by assets, as well as Japan’s $1.5tn government pension fund, the world’s largest. Apple, Microsoft, and Google’s parent firm, Alphabet – the three biggest US public companies – all rely on the system to steward hundreds of billions of dollars in their corporate treasury investment portfolios.”

In February, $21.6 trillion in assets sat on the platform from just a third of its 240 clients, the FT reported, citing public documents verified with the companies and first-hand accounts. Firms try to replicate it as a product, but none have been able to do so at the same scale. 

Read more: BlackRock is eyeing aggressive growth for its Aladdin platform, and says it could manage risk for the entire asset management industry by 2025

3. BlackRock has hired many former government officials into senior roles.  

By the time Deese and Adeyemo got to BlackRock, they already had experience working in government. Deese was previously a senior advisor to President Barack Obama and served as deputy director of the National Economic Council, which he is now set to lead under Biden

Adeyemo, who was appointed as deputy Treasury secretary in the Biden administration, had previously worked as Obama’s senior international economics advisor. While at BlackRock, one of his roles was Fink’s interim chief of staff.

Thomas Donilon, who is now chairman of the asset manager’s research arm, previously served as national security advisor to Obama. (Donilon’s brother, Mike, was Biden’s chief strategist during his presidential campaign). 

Read more: Joe Biden’s Cabinet-in-waiting: Meet the people in play for a new administration, and Biden’s picks for key roles like Secretary of State and national security advisor

BlackRock has hired other former policy-makers and regulators. Coryann Stefansson, who previously worked on bank supervision matters at the Federal Reserve Board and held senior positions at the Federal Reserve Bank of New York, joined BlackRock’s Financial Markets Advisory (FMA) unit in 2016. She left last year, according to LinkedIn. 

4. The firm played a significant role in aiding the Federal Reserve this year. 

The FMA unit, which is effectively BlackRock’s consulting arm, separate from its investment management operations, had a significant role to play in the US government’s coronavirus pandemic response this year. 

In March, the Federal Reserve picked the FMA division to handle an emergency asset-purchasing program. There was no process where other asset managers could have bid for the job, according to a Wall Street Journal report.

After an analyst said on an April earnings call that investors viewed BlackRock’s mandate as a “bailout” for his firm or the exchange-traded fund industry broadly, Fink called the question “insulting.”

Read more: BlackRock has shaken up leadership in its influential advisory business that works on projects like the Federal Reserve’s massive bond-buying program

5. The Federal Reserve tapped BlackRock during the last financial crisis, too. 

The investment manager had been there before, defending its connection to the Federal Reserve. During the global financial crisis of 2007-2009, the Federal Reserve Bank of New York asked BlackRock’s FMA division to handle assets of Bear Stearns and AIG, both on the verge of collapsing. 

“They have access to information when the Federal Reserve will try to sell securities, and what price they will accept. And they have intricate financial relations with people across the globe,” Republican Senator Chuck Grassley told the New York Times at the time. “The potential for a conflict of interest is great and it is just very difficult to police.”

BlackRock has emphasized that the division handling Fed mandates, the FMA, is distinct from its core money management business to prevent conflicts. 

6. Fink has been vocal on matters of climate change, urging other companies’ leaders to consider the associated risks. 

“Climate change has become a defining factor in companies’ long-term prospects,” he wrote in his open letter to chief executives in January. 

“Disclosure should be a means to achieving a more sustainable and inclusive capitalism. Companies must be deliberate and committed to embracing purpose and serving all stakeholders – your shareholders, customers, employees, and the communities where you operate,” he said. 

The firm rolled out related initiatives, like exiting investments that carry sustainability-related risks and launching new products that screen for exposure to fossil fuels. 

7. But his firm has been scrutinized for its record on supporting shareholder requests for climate-related disclosures.

In a September report, Morningstar, a firm that analyzes fund information, said it found support for those type of requests rose at asset management giants Fidelity, State Street Global Advisors, and Vanguard, but fell at BlackRock compared to the year prior.

“While 2020’s results mark a higher level of support than BlackRock had given such proposals from 2016 through 2018 – when its backing never made it to double digits – the 2020 level of ‘for’ votes was down to 14% from 25% in 2019,” analysts wrote of the 14 climate-related resolutions shareholders requested this year. 

Read more: ‘Pleasantly surprised’: Activists say BlackRock’s climate change strategy is a good first step, but more needs to be done

8. It has long been rumored that Fink himself will head to DC. 

BlackRock Chief Executive Larry Fink was reportedly under consideration by 2016 presidential candidate Hillary Clinton to run the Treasury Department. He was also rumored to be under consideration for Biden’s administration.

But he has squashed that chatter. Last month, private equity founder David Rubenstein asked Fink during Bloomberg’s virtual New Economy Forum how he would respond to a request from Biden to serve in his cabinet. 

“Thank you for that honor, but I’m very happy at BlackRock. I’ve committed to my employees and to my board and to my family already. I’m staying in New York for the time being,” he said, according to a transcript of the event. 

9. BlackRock has made lots of acquisitions. 

Think of BlackRock as a firm that has gobbled up lots of competitors in its path over the years.

The firm has purchased legacy businesses and fintech startups, looking to keep an edge as traditional money management isn’t as profitable or unique as it once was.

Read more: What BlackRock’s $1 billion bid for a trendy indexing business means for the money management industry

Last month, the firm said it would acquire a California-based investment provider called Aperio for approximately $1 billion in cash. Last year, BlackRock acquired eFront, a French startup that runs alternative investments management software, for $1.3 billion. 

In 2009, BlackRock acquired Barclays Global Investors in a deal that included Barclays’ iShares ETF business; and three years before that, the firm acquired Merrill Lynch Investment Management.

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