Pimco and PGIM Warn of Rate Hike Risks Amid Trump-Era Fed Tensions

Pimco and PGIM have raised alarms over the potential for higher U.S. interest rates if political conflict over Federal Reserve independence intensifies under a second Trump administration. The firms cite growing uncertainty as a key driver of market volatility.

Pimco and PGIM have flagged a rising risk that political interference with the Federal Reserve could push benchmark interest rates higher than current market expectations. The firms argue that if a renewed presidential push to influence monetary policy were to materialize, it could undermine central bank credibility and prompt investors to demand higher yields to compensate for perceived policy instability. Specifically, Pimco forecasts a 60% probability that the Federal Funds Rate will exceed 6.5% by mid-2027 if institutional independence is compromised. PGIM’s analysis suggests that even the threat of such interference could elevate 10-year Treasury yields to 5.2%—up from current levels near 4.5%—as markets price in increased systemic risk. The implications extend beyond government debt. Higher borrowing costs could slow corporate investment and consumer spending, with mortgage rates potentially rising above 8% for 30-year fixed loans. Bond portfolios managed by both firms are already reducing duration exposure, with Pimco cutting average maturity by 1.3 years and PGIM shifting toward floating-rate instruments. Investors in U.S. equities and high-yield debt are also feeling the pressure. The S&P 500 has seen a 2.1% correction since late December, while high-yield spreads have widened by 45 basis points, signaling growing risk aversion. Financial institutions with significant exposure to long-term fixed income—including regional banks and insurance providers—are closely monitoring the situation.