PIMCO: Iran war may lead to Federal Reserve rate hikes

The surge in energy prices triggered by Iran’s closure of the Strait of Hormuz presents new challenges for U.S. policymakers, who have already struggled to bring inflation down to the Federal Reserve’s 2% target. “The U.S. is a bit further away from that situation, but for now, Europe, the UK, and possibly even Japan, are likely to see further tightening measures. I wouldn’t completely rule out the possibility of the U.S. taking similar action.” Given the current inflation trajectory and the uncertainties surrounding inflation, a U.S. rate cut could backfire, and such a move “would likely cause medium- and long-term interest rates to rise further.” (Financial Times)