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

Investors should rule out nothing from the Federal Reserve in 2025 if the incoming Trump administration cancel the new tariffs for China and the European Union.

“I think rate hikes are possible. You have to be prepared. It’s really important,” BNY CEO Robin Vince told Yahoo Finance World Economic Forum in Davos, Switzerland.

“That doesn’t seem like the most likely outcome. To me, the Federal Reserve has gone down a path that looks like they might pause a little bit and take stock of where things are.”

On his first day in office on Monday, Trump wasted no time in fueling concerns about tariffs, threatening 25% tariffs on Canada and Mexico, and possibly up to 100% tariffs on China, if a deal with TikTok is not reached.

The bank’s shares were a post-election boom despite the uncertainty of tariffs and their economic impact, the KBW Nasdaq Bank Index (^BKX:Up 8% since Trump’s win, while BNY shares are up 3%.

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

The Consumer Financial Protection Bureau (CFPB) imposed a raft of high-profile rules under the Biden administration and saw a yawning watchdog that Trump is expected to roll back to free up banks.

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

And finally, banks may be less affected by the so-called Basel III endgame, paving the way for capital injection to increase dividends and buy back shares.

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

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

“We also see a framework of deregulation under the Trump administration that should invigorate retail [benefiting brokers] and access to private markets in the pension channel [benefiting alts]Morgan Stanley analyst Betsy Grasek said.

“For the first time since the Great Financial Crisis, the regulatory environment for large-cap banks is likely to stabilize and not gradually tighten, and our expectation is that the Fed can either sit on the Basel endgame or implement the Basel endgame option “.

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