"New Bond King" Gundlach: The Federal Reserve needs to cut interest rates quickly, expecting the first cut of 50 basis points tonight
"New Bond King" Gundlach stated that the Federal Reserve needs to quickly cut interest rates by 50 basis points to address the economic slowdown. He pointed out that the current two-year US Treasury bond yield has dropped to 3.6%, and the Fed should cut rates by 150 basis points. He believes that rate cuts will boost corporate profits, but if the cut exceeds expectations, it may trigger concerns about economic health. Gundlach also mentioned that current inflation pressures have significantly eased and reiterated the view that the US is already in a recession
"New Bond King" and CEO of DoubleLine Capital, Jeffrey Gundlach, stated on Tuesday that in the current economic slowdown, the Federal Reserve needs to quickly ease its policies and cut interest rates by 50 basis points this week.
Speaking at the Future Proof conference in Huntington Beach, California, Gundlach said, "The Fed's interest rates often follow the rates of the two-year U.S. Treasury bonds, which have dropped to 3.6%, so the Fed needs to cut rates by 150 basis points quickly."
Gundlach said, "I think they will start with a 50 basis point cut." According to the FedWatch tool from the Chicago Mercantile Exchange Group (CME Group), the market is currently pricing in a 60% chance of the Fed announcing a 50 basis point rate cut at the end of the meeting early Thursday.
Just a week ago, a 25 basis point cut was the consensus. The magnitude of the Fed's first rate cut in years has been a point of contention on Wall Street. On one hand, after experiencing high borrowing costs and stubborn inflation, a rate cut can help boost corporate profit growth. On the other hand, if the cut exceeds previous expectations, it may raise concerns about the health of the economy as there have been signs of weakness.
Gundlach said, "Looking at oil prices, broader prices, and upcoming layoffs, we are likely facing a situation of deflation, which could lead to zero wage growth. Therefore, I believe the Fed is far behind the curve and should take action."
Recent inflation data shows that price pressures have eased significantly since the sharp rise in 2021-22. An index measuring consumer prices indicates that the 12-month inflation rate is at its lowest point since February 2021, while an index measuring wholesale prices suggests that price increases are mostly under control.
Gundlach is a renowned fixed-income investor, and his company manages $96 billion in assets as of 2023. Gundlach stated that he stands by his view that the U.S. is already in a recession.
"I said on July 31 that history books will say the U.S. entered a recession in September 2024. I still believe that is true," Gundlach said. "We are in an economic recession right now." He has long warned investors not to ignore the yield curve inversion, where the 2-year U.S. Treasury bond yield is higher than the 10-year U.S. Treasury bond yield.
The yield curve inversion has been a reliable indicator of predicting economic recessions, and signs of the inversion reversing may indicate an impending recession. Gundlach believes that the recent end of the yield curve inversion heightens the implication of an economic recession