Dan Ivascyn, chief investment officer at bond giant PIMCO, warned this week that the Federal Reserve may need to raise interest rates instead of cutting them, as inflation fueled by the US-Iran conflict keeps price pressures elevated. Speaking on the impact of Iran's closure of the Strait of Hormuz, Ivascyn said the disruption has worsened inflation challenges and makes it harder for the Fed to reach its 2% target. Cutting borrowing costs now, he added, could be counter-productive and may lead to higher intermediate long-term rates. The warning comes as March inflation data showed consumer prices rising 0.9% month-over-month, pushing annual inflation to 3.3%, while the Fed's preferred PCE gauge hit 3.5% — its highest in nearly three years.
Why the Fed's hands are tied
Franklin Templeton CEO Jenny Johnson echoed the concern, saying inflation will be difficult to contain and the Fed will find it hard to cut rates. The central bank has held its benchmark rate at 3.50% to 3.75% since January after three cuts in 2025. But with the Strait of Hormuz — a chokepoint for about 20% of global oil shipments — still contested, energy prices are feeding into core goods. Ivascyn's point is blunt: any cut now risks undoing whatever progress the Fed made last year.
Goldman Sachs pushes back the timeline
Goldman Sachs has already moved its forecast for the next two rate cuts to December 2026 and March 2027. The bank expects core PCE to hover near 3% through the rest of the year, well above the Fed's target. That's a long wait for markets that had priced in a return to looser policy by mid-2026. The message from both Wall Street and the bond market is clear — don't expect relief anytime soon.
What higher-for-longer rates mean for crypto
For risk assets like Bitcoin and Ethereum, a prolonged period of high rates compresses valuations. Altcoins tend to take the brunt of selling when liquidity tightens. Bitcoin managed to reclaim $80,000 in early May after the Trump administration eased tensions with Iran, but that rally could stall. The next big test is the June FOMC meeting, where a hawkish pivot from the Fed would likely cap any upside. The timing isn't great for crypto bulls hoping rate cuts would fuel a fresh leg higher.
The June FOMC decision arrives in about three weeks. Until then, the inflation data and any shift in Iran diplomacy will be the main drivers.
