Harvey added that he thinks stocks could jump by double digits in the second half of the year. His S&P 500 forecast implies an 18.5% surge from Friday’s close.
Tariffs are generally seen as inflationary and could force the Fed to hold off on monetary easing. But if consumers treat them as one-off price hikes and keep their longer-term inflation expectations anchored, then there could still be leeway to lower rates.
Harvey expects tariffs to settle in the 10%-12% range and said that even as clients express anxiety about all the uncertainty, they are still comfortable with the economy’s fundamentals.
That prompted CNBC’s Scott Wapner to ask if Trump can have his cake and eat it too, namely, moving ahead with his tariff agenda and getting the Fed rate cuts that he’s been demanding.
“I think so,” Harvey replied. “So the reason why we said 10% is with 10% we think a third will be eaten by the importer, a third eaten by the corporation, and a third will be eaten by the consumer. That’s not a big impact.”
At the same time, he added that the tariffs will generate revenue that can help with the federal budget, which has seen massive deficits in recent years.
Fears that deficits will worsen under Trump’s proposed budget working its way through Congress have led to volatility in borrowing costs as bond market jitters have jolted Treasury yields.
Meanwhile, as trade talks continue, it’s more important for the Trump administration to reach deals with India, Japan and the European Union, Harvey said, adding that China is less critical since the U.S. is in the process of disintermediation from it anyway.
But if tariff uncertainty stretches into June and July, then companies may start resizing their payrolls and then “things start to fall apart,” he warned.
That’s why it’s necessary to make progress on trade and reach deals with big economies like India, Japan and the EU, Harvey said. That way, markets can focus on next year, rather near-term tariff impacts.
“Then you can start to extrapolate out,” he explained. “Then the market starts looking through things. They start looking through any sort of economic slowdown or weakness, and then we start looking to ’26 not at ’25.”
