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(Bloomberg) — The war in Iran may lead the Federal Reserve to further delay interest-rate cuts and instead raise rates, Pimco Chief Investment Officer Dan Ivascyn told the Financial Times.
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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.
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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.
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He added that any reduction in US 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.”
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Franklin Templeton Chief Executive Officer 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.
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The Fed kept rates steady in its last two meetings. Few market watchers expect rate hikes in the near term but there is increased uncertainty over what the central bank may do in coming meetings.
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Three regional Fed presidents — Lorie Logan, Neel Kashkari and Beth Hammack — dissented from the Fed policy statement in April saying the board had a bias toward easing policy. The 8-4 vote in April’s policy decision was the first time since 1992 that four officials have voted against an action.
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President Donald Trump has pressured the Fed to lower interest rates since he returned to office.
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In a note on Friday, Goldman Sachs analysts wrote that they expect the Fed to push its next two interest rate cuts to December 2026 and March 2027, with energy costs predicted to keep core PCE inflation close to 3%.
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