Senior money managers said that Trump’s policies will increase the risk of inflation in the bond market
By Davide Barbuscia
NEW YORK (Reuters) – Giant U.S. asset managers that oversee more than $20 trillion in assets are expecting continued price pressures from President Donald Trump’s immigration and trade policies, which could threaten the bond market this year.
Vanguard, the world’s second-largest asset manager with more than $10 trillion under management, said in a Reuters first-quarter fixed income outlook report that it expected “inflation to remain flat” above the Fed’s key measures of inflation. 2% of reserves for most of 2025 and above 2.5%.
Trade and immigration policies implemented by the Republican Trump administration could further complicate the picture, according to a report written by the Active Fixed Income Group, led by Sarah Devereux, global head of the fixed income group.
“While our fundamentals outlook is positive, we stress that the uncertainty created by the incoming administration will have broad implications for growth, inflation and monetary policy both domestically and abroad.”
Investors are awaiting further announcements from the new administration on tariffs, immigration and tax cut policies. Trump, who began his second term in the White House on Monday, has vowed to hit the European Union with tariffs this week, and his administration is discussing a 10% punitive tariff on Chinese imports – a 2018 deal. 60% less than the 2024 presidential campaign.
He also said he plans to impose 25% tariffs on imports from Canada and Mexico on February 1.
The impact of Trump’s policies on inflation and growth will depend on their scope and order, said Libby Cantrell, head of public policy at PIMCO and Alison Boeker, an economist at the bond-focused investment firm, which manages $2 trillion in assets.
But with tariffs rising due to expected tax cuts and a widening budget deficit, growth is likely to slow as inflation picks up this year. “In our baseline view, we expect modestly higher inflation in the U.S. between 20 and 40 percent of core inflation in 2025,” they wrote in a note on Thursday. “Negative developmental effects may be of similar magnitude.”
Vanguard warned of negative-growth impacts on tariff rates and distribution. “Geopolitical repercussions could increase business uncertainty and limit further growth,” he added.
The rising price
U.S. government bond yields, which tend to rise when inflation falls, have risen in the past few months, partly due to the maintenance of pro-growth policies under the Trump administration that could also reinvigorate inflationary pressures, complicating the Fed’s efforts to lower inflation to its target.