Investors should not rule out anything from the Federal Reserve in 2025 as the newly established Trump administration uncorks new tariffs on China and the European Union.
“I think rate hikes are possible. Anything is possible. You have to be prepared. Resilience is really important,” BNY CEO Robin Vince told Yahoo Finance at the World Economic Forum in Davos, Switzerland.
“It doesn’t feel like the most likely outcome. To me, the Federal Reserve has been on a path that suggests they can pause for a moment and take stock of the state of play.”
On his first day in office on Monday, Trump wasted no time in stoking tariff concerns. He threatened tariffs of 25% on Canada and Mexico, and possibly tariffs as high as 100% on China if a deal on TikTok was not reached.
Bank stocks rose after the election, despite the unknown of the rates and their economic impact. The KBW Nasdaq Bank Index (^BKX) is up 8% since Trump’s victory, while BNY shares have posted a 3% gain.
As of 10:22:22 AM EST. Market open.
Investors have a board to choose from to explain the bullishness even as macroeconomic concerns emerge.
Under the Biden administration, the Consumer Financial Protection Bureau (CFPB) has issued a host of high-profile rules and seen a gaping regulatory authority. Trump is expected to roll back that authority to free up the banks.
Meanwhile, deal activity is expected to increase under Trump as regulations relax. That could help fuel the big banks’ lucrative M&A arms, while supporting broader market valuations and trading activity.
And finally, banks hit by the so-called Basel III endgame may be less affected – paving the way for capital to be deployed for higher dividends and share buybacks.
“I think the lesson we’ve learned over the last 15 years is that banks have added a lot of capital. Banks have added liquidity. The regulators have done a fantastic job of making the system stronger,” Vince said.
“Let’s start using it for the purpose that banks were created for, which is to help them grow and help customers and individuals succeed.”
“We also see room for deregulation under the Trump administration, which should revive retail [benefiting brokers] and room for private market access to the pension channel [benefiting alts]says Morgan Stanley analyst Betsy Graseck.
“For the first time since the Great Financial Crisis, the regulatory environment for major banks is likely to stabilize and not become incrementally stricter. Our expectation is that the Fed will either stick with the Basel endgame or implement a version of the Basel endgame that is capital neutral.”