(Bloomberg) -- Guggenheim Partners’ Anne Walsh sees the Federal Reserve delivering one more interest rate cut this year, even as geopolitical tensions stemming from the Iran conflict complicate the central bank’s policy outlook.
“I think there’s a case for one more cut,” Walsh, the Chief Investment Officer for Guggenheim Partners Investment Management, said Monday at the Milken Institute Global Conference in Beverly Hills. She identified an extended conflict in Iran as the main risk that could derail markets and influence the Fed’s decision-making.
The statement adds a prominent voice to the debate over the Fed’s next move. The central bank has held its benchmark federal funds rate in a 3.5% to 3.75% range since its last quarter-point hike. While futures markets are pricing in a low probability of a cut at the Fed's June meeting, Walsh's comments suggest a dovish tilt remains possible later in the year depending on how economic data evolves alongside geopolitical risks. The ongoing conflict has already been cited by Fed officials, including Minneapolis Fed President Neel Kashkari, as a key factor creating economic uncertainty and complicating guidance.
For investors, the situation presents a complex calculus. A potential Fed rate cut could provide a tailwind for equities and bonds, but continued or escalated conflict in the Middle East threatens to drive energy prices higher, fueling inflation and potentially forcing the Fed to maintain its restrictive stance. The war has already been blamed for dashing earlier expectations of up to three rate cuts in the first half of 2026.
The Federal Reserve's own messaging has reflected this uncertainty. At its April 29 meeting, the Federal Open Market Committee held rates steady but saw an unusual number of dissents. Three governors objected to the inclusion of language that implied an "easing bias," suggesting a growing internal debate about the appropriate path for policy amid persistent inflation risks and the unpredictable fallout from the Iran war.
"Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook," the Fed stated in its April announcement, a sentiment echoed by economists. Mark Zandi, chief economist for Moody's Analytics, noted the conflict had dashed hopes for more aggressive easing.
The bond market has been particularly sensitive to the interplay between Fed policy and geopolitical headlines. Mortgage rates, which track bond yields, rose in March at the conflict's outset before stabilizing. Any significant escalation could send yields and borrowing costs higher again, impacting sectors from housing to auto loans.
As of early May, the market consensus leans toward the Fed holding rates steady through the summer. Pricing in the Fed Decision market for June indicates just a 3.6% chance of a rate cut. The focus for traders in the coming weeks will be on incoming inflation and employment data, as well as any developments in the ongoing negotiations between the U.S. and Iran.
This article is for informational purposes only and does not constitute investment advice.
