Pimco CIO sees risk of US Fed hiking rates due to Iran war

The bond powerhouse’s CIO said surging energy prices tied to Iran’s closing of the Strait of Hormuz create a new challenge for US policymakers who have struggled to bring inflation down to the central bank’s 2% target, the FT reported, citing an interview.

The “US is further away from that, but you are going to see more tightening as it looks today in Europe, the UK and maybe even Japan, and I wouldn’t take it completely off the table for the US either,” Ivascyn told the FT. He said any reduction in rates would be counterproductive “given the inflation dynamic and the uncertainty around inflation,” saying any such move “very well could lead to higher intermediate long-term rates.”

Franklin Templeton CEO Jenny Johnson told the FT that “inflation is going to be harder to keep control of” for the Fed. Investors are showing an increased appetite for inflation-protected assets, Johnson was cited as saying.

The Fed kept rates steady in its past two meetings. Few market watchers expect rate hikes in the near term but there is uncertainty over what the central bank may do in coming meetings. Three regional Fed presidents dissented from the Fed policy statement in April saying the board had a bias toward easing policy.

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