The Fed won't be able to bring inflation down to its target, and Americans will have to live with high prices for years, BlackRock says

• BlackRock strategists expect the Fed will stop its rate-hiking cycle without getting inflation to its 2% target.
• That means Americans will have to live with high prices for years to come, they said.

BlackRock expects the Federal Reserve will have to halt policy tightening before reaching its 2% inflation target, and Americans will have to live with high prices for years to come.

Strategists from the world's largest asset manager said inflation has sparked a cost-of-living crisis, and the Fed has responded with all-out approach to cool prices. But there has been little debate about how the Fed's policies will weigh on economic growth and the labor market.

"We think the 'politics of inflation' narrative is on the cusp of changing," strategists wrote in a note Monday. "The cycle of rapid rate hikes will stop without inflation being back on track to return fully to 2% targets, in our view. We think we are going to be living with inflation. We do see inflation cooling as spending patterns normalize and energy prices relent – but we see it persisting above policy targets in coming years."

To be sure, the economy and labor market have remained resilient so far, despite the Fed's nine consecutive rate hikes over the last year. Friday's jobs data illustrated that growth is moderating but still strong.

Meanwhile, inflation cooled in February in line with expectations, rising 6.0% year-over-year, and down from January's 6.4% rate. Bloomberg economists expect the March reading on Wednesday to show a continued downtrend.

But BlackRock isn't convinced the cooling trend will continue long enough before other trends and priorities take over.

BlackRock pointed to an aging population, geopolitical fragmentation, and the transition to a lower-carbon world as factors that will keep upward pressure on inflation.

Ultimately, getting inflation down to the Fed's target will require a "major recession," strategists noted. But a severe downturn isn't a consensus expectation.

DataTrek Research, for example, pointed to jobs growth and rebounding gasoline demand as indication that a recession is farther away than many think.

And Nobel economist Paul Krugman, for his part, said the job market is the best its been in decades, and the Fed won't need high unemployment to bring down inflation.