Federal Reserve could hike rates if Trump tariffs unleash inflation: BNY CEO

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DAVOS, SWITZERLAND — Investors should rule out nothing from the Federal Reserve in 2025 if the newly minted Trump administration uncorks fresh tariffs on China and the European Union.

“I think rate hikes are possible. Anything is possible. You’ve got to be prepared. Being resilient really matters,” 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 looks like they can pause for a little while and take stock of where things are.”

Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards

On his first day in office on Monday, Trump wasted no time stoking tariff concerns. He threatened 25% tariffs on Canada and Mexico and possibly one as high as 100% on China if a deal on TikTok wasn’t reached.

Bank stocks have been on a post-election upswing despite the unknown of tariffs and their economic impact. The KBW Nasdaq Bank Index (^BKX) is up 8% since Trump’s win, while BNY shares have notched a 3% gain.

Investors have a dinner plate to choose from to explain the bullishness, even with macro concerns swirling.

Under the Biden administration, the Consumer Financial Protection Bureau (CFPB) put forth a host of high-profile rules and saw yawning supervisory authority. Trump is expected to roll back that authority to free up the banks.

Meanwhile, deal activity is expected to pick up under Trump as regulations ease. That could help fuel the lucrative M&A departments of the big banks while also supporting broader market valuations and trading businesses.

And lastly, banks affected by the so-called Basel III endgame may be less so, paving the way for capital to be deployed for increased dividends and stock buybacks.

“I think the lesson that we’ve learned over the past 15 years is banks have added a lot of capital. Banks have added liquidity. The regulators have done a terrific job making the system stronger,” Vince said.

“Let’s go out and use it for the very purpose for which banks are created, which is to be able to help grow and help clients and individuals be able to be successful.”

“We also see scope for deregulation under the Trump administration, which should reinvigorate retail trading [benefiting brokers] and scope for private markets access into the retirement channel [benefiting alts],” Morgan Stanley analyst Betsy Graseck said.

“For the first time since the great financial crisis, the regulatory environment for large-cap banks is likely to stabilize and not get incrementally tougher, and our expectation is that the Fed may either sit on Basel endgame or implement a version of Basel endgame that is capital neutral.”

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