Pimco Warns of Inflation Risk, Says Fed Rate Cut Could Be Counterproductive
Pimco, the world's largest bond fund manager, warned that a US Federal Reserve (Fed) rate cut could be "counterproductive" and that the Fed might even need to raise rates as policymakers respond to the impact of the Middle East conflict.
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- 📰 Published: May 11, 2026 at 09:54
- 🔍 Collected: May 11, 2026 at 10:01 (7 min after Published)
- 🤖 AI Analyzed: May 12, 2026 at 08:35 (22h 33m after Collected)
WASHINGTON, May 10 (CNA) — Pimco, the world's largest bond fund manager, warned that a US Federal Reserve (Fed) rate cut could be "counterproductive" and that the Fed might even need to raise rates as policymakers respond to the impact of the Middle East conflict.
The Financial Times reported that Dan Ivascyn, Pimco's chief investment officer, stated that rising energy prices caused by disruptions in the Strait of Hormuz pose a new challenge for US policymakers who have been striving for years to bring inflation back to the 2% target.
Ivascyn said in an interview with the Financial Times on the sidelines of the Milken Institute's annual conference in Beverly Hills, California: "We would like to see (central banks) respond cautiously, and if necessary, perhaps even implement further tightening policies."
He said: "The US is still further away from that step, but as things stand, Europe, the UK, and possibly even Japan will implement more tightening measures, and I would not completely rule out the possibility of the US doing the same."
He added that if the US lowers borrowing costs, it "could be counterproductive... considering the current inflation situation, the uncertainty of the inflation outlook, and the uncertainty of market inflation expectations." Any rate cut "could push up medium-to-long-term interest rates."
Jenny Johnson, CEO of US asset management firm Franklin Templeton, also pointed out in an interview that "inflation will be harder to control" and warned that "it will be difficult for the Fed to cut rates."
She also said that investors' interest in inflation-hedging assets, including real estate, is increasing because rents usually rise with overall price increases.
The above remarks come amid intense debate within the Fed, as policymakers discuss how to respond to inflationary pressures from surging oil prices. The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.5% in March from a year earlier, the highest level in nearly three years.
The Fed decided last month to keep interest rates unchanged, freezing them for the third consecutive time, but the decision-making process saw the most dissenting votes since 1992.
In its post-meeting statement, the Fed hinted that the next step could still be a rate cut. This so-called "easing bias" means most observers do not expect the Fed to raise rates, and futures market trading also shows that investors generally bet that the Fed's interest rates will remain unchanged this year.
Manny Roman, Pimco's CEO, said that since the US is a net exporter of oil and natural gas, "the inflation pressure faced by the US is clearly different from that of the UK or Germany."
However, both he and Ivascyn believe that strong corporate profits and expected spending on artificial intelligence (AI)-related investments will continue to drive stock markets higher, further adding heat to US economic growth.
US Treasury yields have risen sharply as the Middle East conflict disrupted market expectations for multiple Fed rate cuts in 2026. Since the outbreak of the war at the end of February, the yield on the 2-year Treasury note, which is closely related to policy expectations, has risen by about 0.5 percentage points to 3.87%. (Compiler: Liu Wen-yu) 1150511
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The Financial Times reported that Dan Ivascyn, Pimco's chief investment officer, stated that rising energy prices caused by disruptions in the Strait of Hormuz pose a new challenge for US policymakers who have been striving for years to bring inflation back to the 2% target.
Ivascyn said in an interview with the Financial Times on the sidelines of the Milken Institute's annual conference in Beverly Hills, California: "We would like to see (central banks) respond cautiously, and if necessary, perhaps even implement further tightening policies."
He said: "The US is still further away from that step, but as things stand, Europe, the UK, and possibly even Japan will implement more tightening measures, and I would not completely rule out the possibility of the US doing the same."
He added that if the US lowers borrowing costs, it "could be counterproductive... considering the current inflation situation, the uncertainty of the inflation outlook, and the uncertainty of market inflation expectations." Any rate cut "could push up medium-to-long-term interest rates."
Jenny Johnson, CEO of US asset management firm Franklin Templeton, also pointed out in an interview that "inflation will be harder to control" and warned that "it will be difficult for the Fed to cut rates."
She also said that investors' interest in inflation-hedging assets, including real estate, is increasing because rents usually rise with overall price increases.
The above remarks come amid intense debate within the Fed, as policymakers discuss how to respond to inflationary pressures from surging oil prices. The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.5% in March from a year earlier, the highest level in nearly three years.
The Fed decided last month to keep interest rates unchanged, freezing them for the third consecutive time, but the decision-making process saw the most dissenting votes since 1992.
In its post-meeting statement, the Fed hinted that the next step could still be a rate cut. This so-called "easing bias" means most observers do not expect the Fed to raise rates, and futures market trading also shows that investors generally bet that the Fed's interest rates will remain unchanged this year.
Manny Roman, Pimco's CEO, said that since the US is a net exporter of oil and natural gas, "the inflation pressure faced by the US is clearly different from that of the UK or Germany."
However, both he and Ivascyn believe that strong corporate profits and expected spending on artificial intelligence (AI)-related investments will continue to drive stock markets higher, further adding heat to US economic growth.
US Treasury yields have risen sharply as the Middle East conflict disrupted market expectations for multiple Fed rate cuts in 2026. Since the outbreak of the war at the end of February, the yield on the 2-year Treasury note, which is closely related to policy expectations, has risen by about 0.5 percentage points to 3.87%. (Compiler: Liu Wen-yu) 1150511
Choose to stand with facts, every sponsorship you make is a force to protect press freedom.
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The text, images, and videos on this website may not be reproduced, publicly broadcast, or publicly transmitted and used without authorization.