Pimco CIO warns Iran war may prompt Fed to hike rates
The Federal Reserve just held interest rates steady at 3.50%-3.75%. That part was expected. What wasnt expected: four Fed presidents voted against the decision, arguing the central bank should have signaled potential rate hikes instead. That level of internal disagreement hasnt happened in over 30 years. And it tells you everything about how dramatically the Iran conflict has rewritten the script for US monetary policy in 2026. A four-way split that shook the FOMC The April 29 vote came down 8-4, with the dissenters pushing for language that would leave the door open to raising rates. Before the Iran conflict escalated, the consensus view was that the Fed would be cutting rates multiple times this year. Inflation was cooling, the labor market was normalizing, and bond traders were pricing in a relatively smooth glide path toward easier monetary conditions. The war in Iran has sent energy costs surging, and those costs ripple through everything: transportation, manufacturing, food production, heating. PIMCO, the worlds largest active bond manager, has taken notice. The firm revised its base case projection to just two rate cuts in 2026, down from four. And even those two cuts, PIMCO expects, would likely be concentrated in the fourth quarter, meaning most of the year