The Macro Framework Is Changing—and So Are the Risks

On this episode of The Long View, Mike Pyle, managing director and deputy head of the Portfolio Management Group at BlackRock, who also held economic policy roles in both the Obama and Biden administrations, discusses the importance of alternative strategies in an uncertain environment, what is different about today’s market from the past, and what he thinks investors misunderstand about changes in policy.

Here are a few highlights from Pyle’s conversation with Morningstar’s Dan Lefkovitz.

Why the US Equity Market Has Remained Resilient in the Face of Policy Changes

Dan Lefkovitz: We’ve had so much on the policy front in 2025 between tariffs and the Big Beautiful Bill, government shutdown. Obviously, you served in the Obama and Biden administrations. We won’t ask you to get political at all, but it’d just be interesting to hear how you’ve been thinking about policy as a factor that impacts your investment calculus.

Mike Pyle: Sure. So, I think obviously one of the big buzzwords of 2025 has been uncertainty, particularly as applied to the policy environment. I think that is in fact a helpful frame. There is a reason why that word has been used so much, but I think that we’re now six or seven months into the new administration, into seeing how policy is being and is going to be set. And I think we’re in a place where we can say some more confident and fully knowledgeable things about where we are and likely where we’re going. So first on the tariffs, I’d say a couple of things, one, it’s very clear that this is an incredibly important policy tool for President Trump and the administration. He is using that tool in a historic way. So, the president inherited about 2.5% average effective tariff rates on the rest of the world. And today we’re sitting on about 17.5%. That’s, a sevenfold increase that’s as high as that rate has been in 100 years. So this is a very significant use of policy and a policy tool that the president clearly sees as his go-to instrument.

Secondly, I think we here agree with the Fed and other economic forecasters, the move to significantly higher tariffs is on the margins. Slowing growth this year is on the margins, increasing price levels. I think we would also observe that, unlike in the textbook, this isn’t happening one time all at once overnight but is playing out over a period of months and quarters. Again, consistent with what we’ve heard from Chair Powell.

The last point I would make is, this moment I think requires that you hold two ideas in your head at the same time that are somewhat in tension with one another. So on one hand, yes, this move toward higher tariffs, we think is leading to slower growth in the short run, is leading to higher price levels. And so in that sense, it’s a negative growth and a negative inflation shock. On the flip side, the United States is still by some margin, the most dynamic, the most innovative, the most resilient economy in the world with incredible stores of reserves in terms of that underlying credibility, stability, dynamism. And so, I think at some level it’s not surprising that while we’ve had these negative growth and inflation shocks, we’ve still seen positive growth. We’ve still seen positive equity market performance because the United States still has these incredibly important reserves of strength, even in the face of policy changes that at least in the short run probably have some growth and inflation costs.

What Investors Misunderstand About Policy Changes

Lefkovitz: I’m curious, having been in the room where it happens, so to speak, policy making- wise, are there things that you think observers, the media, or the investment community misunderstand?

Pyle: I think that’s a really good question because I think oftentimes there are difficulties of translation, frankly, from one world to another, from Wall Street to Washington, from Washington to Silicon Valley, from Washington to the media. I’d say, one thing that I really work to do is highlight that for all the differences, obviously between the parties, between this administration and the last one, there are some important threads of continuity as well. And I think one place that I would highlight, maybe two, would be, one, this idea that the United States needs to rebuild its industrial and manufacturing base for principally reasons of national security and that we’ve got to take affirmative policy steps to do that. That was one of the guiding objectives of President Biden. It’s one of the guiding objectives of President Trump. In a similar vein, I think both the Biden and the Trump administrations really see both the centrality of artificial intelligence, of the AI transformation, and share a belief that the United States needs to win that race and be the preeminent country on Earth when it comes to leading on AI.

There’s plenty of difference around the policy tools that are being used to achieve those objectives. Clearly, the Biden administration had a different approach on these questions than the Trump administration on some important respects, but I think it’s important for, observers, wherever they come from, to kind of cut away some of the noise and realize that there are an important set of shared objectives here around rebuilding our industrial base, around ensuring that the United States continues to define the frontier of leadership on AI. And, as a result, there’s in some ways important areas of commonality that are often underappreciated when you just kind of see the cacophony in Washington day in and day out.

Why Geopolitical Risk Looks Different Across Markets

Lefkovitz: Yeah, that’s an encouraging thought for sure. Given your perspective, having been a policymaker and now an investor, it seems like the market has in many cases shrugged off political risk, geopolitical risk. Why do you think that’s been?

Pyle: So I’d say a little bit that it depends on the market that you look at. Clearly, when you look at the US equity market, obviously March and the start of April were very volatile. Those very volatile periods saw a significant pullback, but we’ve obviously seen a very substantial rally since then. And we’ve got US equities up on the year. In some ways, I think that’s at core about exactly what I was talking about a moment ago, about the importance of the AI transformation around the extent to which US companies are leading the way in defining that. And investors around the globe in the United States and beyond want exposure to that theme, to that transformation. And I think that that is a large part of why you were seeing the positive equity market performance that we’ve seen since the lows in early April.

You look to another part of financial markets, for example, look at the US dollar, there you see some of a different story. The dollar sold off alongside US equities in March and early April. Pretty unusual behavior, typically, you think of risk-off periods in stock markets as being positive for the dollar as investors look for that flight to quality. That’s not what we saw in March and April. We saw the dollar pull back. But interestingly, even as stocks began to find their footing and rally again, we continue to see the dollar weaken through April, May, June before finding it seems a more stable footing for now in July. And so I think that that divergence is really interesting because on one hand, like I said, I think the equity market performance is at core really about that AI transformation megatrend. I think in the dollar, you see, a more traditional set of macro forces, you see concerns around the inflation dynamic in the United States.

You see concerns around the fiscal trajectory in the United States. You also see changes, I think on the margin around investor behavior globally. Traditionally, the past couple of years, they’ve been willing to take those dollar exposures on an unhedged basis when they invest in US equities. I think investors globally are being a little more cautious about their hedge ratios today. And I think all of that adds up to—again to the point of your question—a slightly different perspective, depending on the market you’re looking at. And in some places seeing that uncertainty, and in other places, considerably less so.

Why Today’s Market Uncertainty Isn’t the Same as Market’s Past

Lefkovitz: Yeah, that’s interesting. I know you’ve cautioned against making big investment bets based on macro trends. Why is that?

Pyle: Yeah, so I think that the big point to make there is that the nature of the macroeconomic environment has changed quite a lot over the last handful of years. If you think about macro investing or investing on the basis of macro for, most of the postwar period, it was about a relatively stable policy and geopolitical foundation on top of which sat those basic macroeconomic investing variables—growth, inflation, monetary and fiscal policy in a world where monetary and fiscal policy were generally governed by pretty stable frameworks. I think there’s a there’s a lot more play in the joints across all of those dimensions today versus even just five or 10 years ago. So obviously the underlying foundation of the global trade architecture, of the global security architecture, of geopolitics and the global economy more broadly, much more uncertain today than it was five or six years ago. And, with a more uncertain foundation, I think forecasting some of those macro variables around growth, inflation, and policy reaction functions.

Similarly, you have to put bigger bounds of uncertainty around that. At the same time, you’ve seen big mega forces like AI come into the mix and in some ways be even bigger drivers of markets today than the growth and inflation impulses have been recently. Bottom line is, the traditional macro framework that we, and investors got accustomed to and got accustomed to forecasting on the basis of, is much different, much more uncertain, much less anchored than it was in past years. And that requires, I think, a different degree of caution and a different approach to investing than has been the case for the past three or four decades.