BlackRock Says Market Turmoil May Cause Fed to Delay Hike

  • Delay in raising rates a ‘near-term negative,’ report says
  • JPMorgan Funds echoes view, BMO sees Fed reevulating policy

How Will Donald Trump Impact the Fed?

BlackRock Inc., the world’s largest money manager, said that market turmoil resulting from Donald Trump’s presidential victory may cause the Federal Reserve to hold off on an interest rate increase in December.

"Any Fed delay in raising rates is a near-term negative," according to a bulletin released by the New York-based company Wednesday.

Prior to the result, the Fed seemed poised to lift rates next month for the first time since December 2015. In the election’s aftermath, market volatility could stay their hand if it persists and financial conditions tighten. Uncertainty about how Trump will approach domestic and international policy could further obscure the economic outlook, and how that plays out has potential to delay or accelerate Fed policy tightening.

Other investors echoed BlackRock’s view regarding the Fed’s plans.

“The uncertainty and volatility following the U.S. election will, for now, reduce the probability of a Federal Reserve rate hike in December,” wrote David Kelly, chief global strategist for JPMorgan Funds, in a note titled “A Populist Victory.”

Jack Ablin, chief investment officer at BMO Private Bank, said in a note: “A Trump victory and concomitant market volatility would likely force the Federal Reserve to reevaluate their monetary policy strategy.”

See also: Mohamed El-Erian’s view on the election result and markets

Among BlackRock’s other projections:

  • Financial stocks may outperform in the medium term because of higher inflation and steeper yield curves, while U.S. regional banks could benefit from a lighter regulatory burden.

  • U.S. Treasuries could initially benefit, but long-term bonds could come under pressure if markets perceive Trump’s policies to widen budget deficit.

  • Emerging market assets could selloff in short run.

T. Rowe Price Group Inc., an asset management firm based in Baltimore, said Trump’s campaign promises on tax cuts and trade, if enacted, could be a negative for the U.S. economy.

Trump’s “plans could drive up annual U.S. budget deficits and its long-term debt and significantly diminish international trade, with negative economic effects here and abroad,’
the firm’s economists and money managers wrote.

Janus Capital Group Inc. was more optimistic. The Denver-based asset manager said in a note that Trump’s win, coupled with Republican control of the Congress, could lead to more spending on infrastructure and tax cuts.

“Over the long term, the stimulative initiatives of a Trump administration, along with growth that may be delivered from other policies, may lead to economic expansion conducive to equities,” Janus said.

Scott Minerd, chief investment officer at Guggenheim Partners, where he oversees $250 billion, said stocks should perform well leading up to the inauguration. “The Trump revolution is likely to be good for risk assets,” he wrote in an e-mail.

Minerd cautioned that long-term interest rates will remain under pressure on the expectation of Trump tax cuts. Treasuries tumbled Wednesday, with 30-year bond yields climbing the most in a year, amid speculation the Republican will ramp up spending to boost the economy.

— With assistance by John Gittelsohn

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