US Markets

Trade war threat stokes inflation concerns, Allianz analyst says

Key Points
  • The Trump administration said it would impose tariffs of 25 percent for steel and 10 percent for aluminum.
  • The move has ignited investor concerns over a trade fight and subsequent inflation.
  • Rising inflation could spur more aggressive rate hikes from the Fed.
Markets fear trade war, which could bring inflation: Pro

The Trump administration's promise of steel and aluminum tariffs has ignited investor concerns over a trade fight, strategist Mona Mahajan told CNBC on Thursday.

"One of the things that a trade war could bring on is rising inflation," she said in an interview with "Power Lunch."

President Donald Trump said Thursday that the U.S. will impose tariffs of 25 percent for steel and 10 percent for aluminum. It is unclear whether the tariffs will apply to all imports or only metals from certain countries.

"When you don't have competition out there, you're going to naturally see rising prices," added Mahajan, U.S. investment strategist at Allianz Global Investors.

She said that the combination of fiscal stimulus, inflation and global growth are driving the Fed's rate hike schedule in 2018. Potential trade fights only cemented that outlook.

"Maybe we're looking at four rate hikes," said Mahajan.

Stocks extend losses after tariff announcement

Other experts drew similar conclusions.

"The prospect of an outright tariff and trade war is something that investors need to process from a longer-term standpoint," Bruce McCain, chief investment strategist and senior vice president at Key Private Bank, told the program.

News of the tariffs sent stocks down Thursday, with the Dow Jones industrial average closing more than 400 points lower. Stocks of U.S. steel and aluminum manufacturers, on the other hand, rose sharply.

"I think that there's a real risk that we're in the 3 percent range over the next 12 months," McCain said, referring to inflation.

One explanation for the Dow's volatile reaction to the tariffs may be psychological.

"What you have is a skittish market," Empire Executions President Peter Costa told "Power Lunch."

"Any time anything comes out that smells like it's bad news, the market will sell off more than it normally would," he said.

— CNBC's Fred Imbert contributed to this report.