U.S. trade tensions with China and other countries may be a good thing because they can keep economies from overheating and reduce the need for central bank intervention, according to the chief investment officer of bond giant Pacific Investment Management Co.
“To the extent a moderate degree of trade tension is leading to slowing growth momentum, then that’s OK,” Pimco’s Dan Ivascyn said in a telephone interview.
Federal Reserve Chairman Jerome Powell said Friday the strong U.S. economic expansion justifies gradually raising interest rates. Higher rates can challenge fixed-income managers such as Newport Beach, California-based Pimco, which oversees about $1.71 trillion, by driving down bond prices.
While there’s a risk of a trade war getting out of control, Pimco’s base case is that it won’t have a major market impact, Ivascyn said. Tensions with China may persist for years, he added.
“It’s an area where there’s a more common view — among Republicans and Democrats, the business community, the political community — to address these long-term challenges,” Ivascyn said.
The U.S. economy expanded at a 4.1 percent rate in the second quarter, the fastest pace since 2014. China’s growth rate was about 6.7 percent.
“When the global economy is running hot, a good analogy is the central banks try to put sand in the gears to slow things down a little bit,” Ivascyn said.
Among his other observations:
- The U.S. housing market remains a good defensive investment despite some recent slowing of sales, construction and price gains
- The possibility of U.S. mid-term elections leading to Democratic congressional control isn’t a big worry: “Markets don’t mind gridlock”
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