Rate cuts by the Federal Reserve would be “counter-productive” and the US central bank may even need to lift borrowing costs as policymakers contend with the fallout of Donald Trump’s war in Iran, Pimco warned.
Dan Ivascyn, chief investment officer at the $2.3tn bond giant, said the surge in energy prices triggered by Iran’s closure of the Strait of Hormuz has created new challenges for US policymakers who have struggled for years to reduce inflation to the central bank’s 2 per cent target.
“We’ll want to see measured responses [from central banks] or even, if necessary, potentially a tightening of policy,” Ivascyn told the FT on the sidelines of the annual Milken Institute conference in Beverly Hills, California.
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