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The Federal Reserve may not stop hiking interest rates until it reaches a level last seen at the height of the dotcom bubble, the world’s largest asset manager warned.

Rick Rieder, chief investment officer of global fixed income at BlackRock, said the U.S. overnight lending rate could reach its highest since January 2001 owing to a surprisingly tight labor market characterized by growth in the low-pay service sector.

The BlackRock managing director added there were signs goods inflation is proving more stubborn than believed, citing a Manheim used-car price index that saw its third straight month-on-month increase.

With roughly $8.6 trillion in assets under management, BlackRock is the industry’s global leader ahead of Vanguard.

“With the payroll strength we’ve witnessed and the stickiness of inflation, we think there’s a reasonable chance that the Fed will have to bring the Fed funds rate to 6%, and then keep it there for an extended period to slow the economy and get inflation down to near 2%,” Rieder posted to Twitter on March 8.

At that level, it would place it firmly above the 5.4% registered by the personal consumption expenditures (PCE) index, the Fed’s preferred gauge of inflation.

This means borrowing rates would have a restraining effect on the economy since interest payments on debt would eclipse the pace at which money naturally depreciates.

Rieder’s prediction of 6% would mark the second highest terminal rate for a Federal funds tightening cycle this century, were it to prove true.

That would place it ahead of the June 2006 mark but behind the 6.5% recorded from May 2000, when the internet stock bubble peaked with America Online’s earlier acquisition of Time Warner for $165 billion.

The deal remains to this day the largest ever recorded in U.S. history.

Has revenge spending post-pandemic tapped out?

Rieder’s Wednesday prediction comes after Fed Chair Jay Powell warned overnight borrowing costs would likely have to be higher than previously anticipated.

Markets quickly reacted to Powell’s hawkish comments, sending stock markets lower and two-year Treasury yields sharply higher.

The result was a yield curve that became more inverted than at any point since 1981—a clear indicator of an impending recession.

BlackRock’s Rieder has argued the Fed’s path is more complicated than most believed since U.S. businesses are displaying flexibility and resiliency previously not considered possible.

Nevertheless, many investors fear revenge spending in the aftermath of the pandemic has tapped out the American consumer and could push the economy into recession.

Total accumulated credit card debt reached a new record of $986 billion at the end of December.

With interest rates on the rise, it’s not just the average household that may struggle to service their monthly payments going forward.

The federal government is also facing steeper costs for financing its budget deficit.

Net interest payments in fiscal 2022 hit $475 billion, a record in nominal dollar value, according to the Peter Peterson Foundation.