New Bond King: Supports a 50 basis point rate cut, the Federal Reserve is already "behind the curve"
New bond king Jeffrey Gundlach said that the U.S. economy has entered a recession, and the Federal Reserve should quickly cut interest rates by 50 basis points to address the problem of prolonged tightening policies. He believes that the Federal Reserve is "far behind the curve" and expects a total rate cut of 125 basis points by the end of the year. Market expectations for rate cuts have driven the bond market, with the yield on the U.S. two-year Treasury falling below 3.6%. Despite an unexpected increase in retail sales in August, employment data is weak, with the unemployment rate rising to 4.3%
The interest rate decision for September is about to be "put on the table", with market expectations running high. Traders' attitudes towards a 25 basis point cut or a 50 basis point cut continue to diverge.
Jeffrey Gundlach, the founder of DoubleLine Capital and the new "Bond King", has also joined the debate on the size of the rate cut, betting that the Fed will kick off its rate-cutting cycle with a 50 basis point cut at Wednesday's policy meeting.
Market speculations suggest that the Fed is preparing to swiftly lower the benchmark interest rate to prevent an economic slowdown. This expectation has driven the bond market, with the yield on the U.S. two-year Treasury falling below 3.6%, about 1.75 percentage points lower than the Fed's target rate.
As of now, the yield on the U.S. two-year Treasury stands at 3.596%.
Gundlach believes that the Fed should narrow this gap. He expects that the Fed is likely to cut rates by 50 basis points this time, with a total cut of 125 basis points by the end of the year.
He also stated, "The U.S. economy is already in a recession, and the Fed has maintained a tight policy for too long:"
"I think they will cut rates by 50 basis points. The Fed is 'far behind the curve' and they should get moving."
Traders, on the other hand, see a 55% chance of a 50 basis point rate cut. Data released by the U.S. on Tuesday showed that retail sales unexpectedly rose in August, while employment data for August also indicated a softening trend, with hiring slowing significantly and the unemployment rate rising to a near three-year high of 4.3%.
Gundlach gave the Fed an "F grade" and added, "They should have cut rates earlier... I see a lot of layoff announcements, and the U.S. is already in a recession."