Investors should not rule out any action by the Fed in 2025 if the incoming Trump administration imposes new tariffs on China and the European Union.

"I think a rate hike is possible. Anything is possible. You have to be prepared. It's really important to be resilient," Bank of New York CEO Robin Vince told Yahoo Finance at the World Economic Forum in Davos, Switzerland.

"This doesn't feel like the most likely outcome. To me, the Fed has been on a path that looks like it could pause for a while and assess the situation."

On his first day in office on Monday, Trump wasted no time in raising concerns about tariffs. He threatened to impose 25% tariffs on Canada and Mexico and possibly up to 100% tariffs on China if an agreement on TikTok is not reached.

Bank stocks have been rising since the election despite the unknowns about the tariffs and their economic impact. The KBW Nasdaq Bank Index (^BKX) is up 8% since Trump's victory, while BNY shares are up 3%.

Investors may have dinner options to explain bullish sentiment despite spreading macro concerns.

Under the Biden administration, the Consumer Financial Protection Bureau (CFPB) has proposed a series of high-profile rules and regulators are making a lot of noise. Trump is expected to revoke his authority to free banks.

Meanwhile, trading activity is expected to increase under Trump as regulations ease. That could help boost the big banks' lucrative mergers and acquisitions units while also supporting their broader market valuation and trading operations.

Finally, banks affected by the so-called Basel III endgame may be less affected - paving the way for the deployment of capital to increase dividends and share buybacks.

"I think the lesson we've learned over the last 15 years is that banks have added a lot of capital. Banks have added liquidity. Regulators have done a great job of making the system stronger," Vince said.

“Let’s go out there and use it for the very reason the bank was created, which is to be able to help the bank grow and help customers and individuals succeed.”

Morgan Stanley analyst Betsy Graseck said: “We also see room for deregulation under the Trump administration, which should reinvigorate retail trading (benefiting brokers) and provide a new platform for private markets. Access to retirement channels (favoring alternative trading) provides scope.”

“For the first time since the financial crisis, the regulatory environment for large banks may be stabilizing and not becoming increasingly harsh, and our expectation is that the Fed may either sit on the Basel endgame or implement a version of the Basel endgame that is Capital neutral.”

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