News that Donald Trump Jr met with a Russian lawyer described as having potentially damaging information on former US secretary of state Hillary Rodham Clinton during last year’s presidential campaign dims the US’ economic outlook, Pacific Investment Management Co (Pimco) chief investment officer Dan Ivascyn said.
US President Donald Trump’s key initiatives such as a health-care overhaul, tax cuts and fiscal stimulus are less likely to win approval before next year’s mid-term elections as controversies build, Ivascyn said.
“We’re becoming a bit more cautious about the possibility of meaningful legislation,” Ivascyn said on Tuesday in a telephone interview from his office in Newport Beach, California. “These types of distractions are just going to make it even more difficult to gain consensus.”
US stocks dipped and trading volume spiked intraday after the release of e-mails by the younger Trump about meeting with the lawyer, who an intermediary said had “very high level and sensitive information” that could help his father’s campaign.
The revelation comes amid multiple investigations into meddling by Russia during the election.
The developments mean the economy will grow slower than the US administration’s projections of 3 percent, Ivascyn said.
Pimco’s long-term US outlook is for 2 percent growth, inflation of about 2 percent and a federal funds rate of about 2 percent to 3 percent, according to a May 31 report.
As a result, the US Federal Reserve would continue its slow path of raising rates and unwinding its US$4.5 trillion balance sheet, rather than rush to head off an overheated economy, Ivascyn said.
“It confirms that the Fed can go slow here, because of the reduced risks of a positive surprise on the fiscal side,” he said.
For Pimco, which oversees about US$1.5 trillion in mostly fixed-income assets, that means a marginal opportunity to increase duration, or sensitivity to changes in interest rates, Ivascyn said.
“We think longer yields trend higher,” he said, “but that’s embedded in market pricing and they’ll be reasonably well bounded as we’ve said for years.”
Ivascyn comanages the US$88.9 billion Pimco Income Fund, which has returned an average of 8.1 percent over the past five years, outperforming 99 percent of its peers, according to data compiled by Bloomberg.
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