Pimco has raised concerns that the Trump administration's growing protectionist stance could negatively affect U.S. financial assets, similar to the experiences of the UK and emerging markets. According to a report by Marc Seidner and Pramol Dhawan, rapid changes in U.S. policies pose challenges for investors accustomed to a global financial system centered on U.S. markets and assets.
Following the announcement of a series of tariffs by the White House, the U.S. Treasury yield curve steepened, with long-term yields rising significantly. Concurrently, the dollar weakened, and U.S. stocks fell, indicating that investors demand higher risk premiums for holding dollar-denominated assets.
Pimco, which manages approximately $2 trillion in assets, likens the U.S. tariff policy to a "self-imposed supply-side shock" akin to Brexit, potentially leading to stagflation. This scenario would require the Federal Reserve to balance rising inflation expectations with weakening U.S. economic growth forecasts.
However, there is hope that recent market weakness may prompt a policy shift. The decision to delay some tariffs and pursue trade negotiations has helped stabilize U.S. markets. Pimco suggests that if U.S. trade policies become less disruptive and more predictable, market sentiment and performance could quickly improve.
