Tensions are set to erupt between the Federal Reserve and President-elect Donald Trump, according to the head of BlackRock, speaking on a panel at the World Economic Forum in Davos.
Referring to the growth-boosting fiscal policies espoused by Trump in recent months, in combination with current market expectations for two to three interest rate hikes from the Federal Reserve this year, Larry Fink sounded a warning note on the currency impact and its consequences.
"Some of the policies that are being proposed are policies that would further strengthen the U.S. dollar," he stated, adding the confluence of anticipated Trump and Fed actions could strengthen the dollar considerably,impact U.S. competitiveness and potentially restrict the ability for the incoming administration to create the jobs in manufacturing that has been a key part of his platform.
In Fink's view, dollar strength "is going to be a big,essential component of the market volatilities. We're going to have to be prepared for this."
"I do believe there will be a great deal of tension between the President-elect and the Federal Reserve on these issues. We should all be aware we are going to live in a world right now of a stronger dollar," he warned.
Fink then extended his cautionary outlook to the new administration's relationship with its overseas counterparts.
"Depending on our behaviors towards our trading partners,this could have a further impact on the dollar," argued the Chairman and chief executive officer (CEO) of the $5 trillion asset management firm, adding the U.S. must take care not to aggravate its largest lenders.
"If we are going to raise our deficits and not completely offset that by other tax revenues, quite frankly, that puts even more pressure on our dollar and in those circumstances, that's a very hard thing to navigate, much harder for any central banker to stop that trend," he outlined.
Fink specifically referred to the relationship with the U.S.'s number one and two lenders, Japan and China, respectively, in pointing out that oversized deficits would precede the hoped-for discernible impact on the economy from the boost to fiscal spending by a couple of years.
"I've always believed you should be nice to your lenders!" he quipped.