Rate Hike Back on the Table? Pimco Sounds Alarm Over Iran War Inflation

Pacific Investment Management Company (PIMCO), a leading US bond manager, has warned that the Federal Reserve may need to raise rates rather than cut them. 

This comes as the US-Iran war drives inflation higher and undermines the central bank’s 2% target.

Wall Street Heavyweights Warn Against Fed Easing Path

CIO Dan Ivascyn said Iran’s closure of the Strait of Hormuz has compounded long-standing challenges for US policymakers who have struggled to bring inflation down to target.

“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,” he said

Ivascyn warned that cutting borrowing costs now could backfire.

“He added that any reduction in US borrowing costs ‘would be counter-productive . . . given the inflation dynamic and the uncertainty around inflation, the uncertainty around inflation expectations’, noting that any such move ‘very well could lead to higher intermediate long-term rates,” the FT reported.

Franklin Templeton Chief Executive Jenny Johnson also said inflation will be difficult to contain. 

“It’s going to be difficult for the Fed to cut,” she warned.

Meanwhile, Goldman Sachs pushed back its forecast for the next two Fed cuts to December 2026 and March 2027. The bank expects energy cost passthrough to keep core PCE near 3% through 2026.

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Sticky Inflation Tightens Liquidity for Crypto

The Fed has held its benchmark rate at 3.50% to 3.75% since January 2026, pausing after three reductions delivered through 2025. March consumer prices climbed 0.9% on the month, pushing annual inflation to 3.3%. 

Personal Consumption Expenditures (PCE), the Fed’s preferred gauge, rose to 3.5%, the highest level in nearly three years.

A higher-for-longer rate path compresses valuations for risk assets, including Bitcoin (BTC) and Ethereum (ETH). Historically, a stronger dollar tied to that outlook weighs on broader crypto markets, with altcoins absorbing the bulk of the selling.

Bitcoin reclaimed $80,000 in early May after the Trump administration moved to ease tensions with Iran, but a hawkish Fed pivot at the June FOMC meeting could cap further upside.

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