The blockade of the Strait of Hormuz has led to a rapid rise in energy prices, putting renewed pressure on U.S. inflation. Against this backdrop, Pimco, the Pacific Investment Management Company (Pimco), points out that...The Federal Reserve is not only unlikely to initiate interest rate cuts, but may even face pressure to tighten policy.
In an interview with the Financial Times at the Milken Institute's annual conference in Beverly Hills, California, the institute's chief investment officer, Dan Ivascyn, stated...The current situation poses a new challenge to inflation.For years, the Federal Reserve has been trying to keep inflation at its 2% target, but rising energy prices have significantly increased the difficulty of this policy.
In the interview, he clearly stated, "We hope to see (central banks) take a prudent response, and even tighten policy if necessary." He also emphasized that although the US is still far from raising interest rates, given the current trend, "you will see more tightening policies in Europe, the UK, and even Japan, and I would not completely rule out the possibility of the US taking this step."
Ivacin's stance on the question of whether to cut interest rates is clear. He believes...Any measure to lower borrowing costs "will backfire.""...given the dynamics of inflation and the uncertainty of inflation and inflation expectations," and further pointed out that such operations "are likely to lead to higher medium- and long-term interest rates."
Jenny Johnson, CEO of Franklin Templeton, expressed similar concerns during the same conference. In a separate interview, she stated that "inflation will be more difficult to control," and bluntly added..."It will be difficult for the Federal Reserve to cut interest rates."This $1.7 trillion asset management firm also observed rising demand for inflation-hedging assets, while real estate became more attractive due to the fact that rents typically rise along with overall price levels.
Inflation data has also reinforced this pressure. The personal consumption expenditures (PCE) price index, a key indicator favored by the Federal Reserve, rose 3.5% year-on-year in March, its highest level in nearly three years. Meanwhile, intense debate is raging within the Fed regarding how to address the inflation risks posed by rising oil prices.
At the policy level, the Federal Reserve has kept interest rates unchanged for three consecutive meetings. Although the post-meeting statements still retained an "accommodative bias" regarding the possibility of future rate cuts, this decision has attracted the most dissenting opinions since 1992. At the market level, futures trading indicates that investors generally expect interest rates to remain unchanged until 2026, rather than be lowered further.
Manny Roman, CEO of Pacific Investment Management Company, pointed out from a structural perspective that the United States, as a net exporter of oil and gas, faces significantly different inflationary pressures compared to the UK or Germany.
However, both he and Ivanovic mentioned thatStrong corporate earnings, coupled with expectations of investment in artificial intelligence projects, have continued to drive the stock market higher, adding extra momentum to the U.S. economy.At the same time, geopolitical conflicts have also changed market expectations: In early 2026, it was widely expected that the Federal Reserve would cut interest rates multiple times, but this judgment has been reversed with the outbreak of war.
The bond market has already reacted significantly. Since the outbreak of the conflict at the end of February, the yield on the two-year U.S. Treasury bond, which is highly sensitive to policy expectations, has risen by more than 0.5 percentage points, now reaching 3.929%.
On the political front, Trump has consistently criticized the Federal Reserve and its Chairman Powell for failing to significantly reduce borrowing costs. However, several institutions still believe the Fed will maintain its independence. At a press conference on April 29, Powell addressed the Trump administration's "legal attacks" on the Fed and announced that he would continue to serve as a governor after his term ends on May 15, a decision that breaks with long-standing practice.
Regarding future candidates, Iwasin, speaking about Trump's nominee for Federal Reserve Chair Kevin Warsh, said that Warsh "will definitely try to narrow the Fed's mandate and may reduce communication related to the Fed's overall processes." However, he also believes that...In the areas of greatest market interest—including interest rate policy setting and balance sheet management—Wash will maintain sufficient independence.
Johnson expressed a similar assessment. She believes Warsh "will care about his long-standing political legacy, which goes beyond the Trump administration. So I think he will try to do what he believes is right." She further noted, "The courts have ruled; the checks and balances set up in the system by the Founding Fathers are working." Despite the potential for politically influenced comments, she emphasized that the Federal Reserve remains independent.
Warsh's nomination has already been approved by the Senate Banking Committee, and it is widely expected that the appointment will be formally confirmed by the Republican-controlled Senate before Powell's term ends on May 15.
