"New Bond King" Gundlach: A significant 50 basis point rate cut is still not enough, the Federal Reserve is a bit behind the curve
Gonglak said that a 50 basis point rate cut by the Federal Reserve is not enough to address the potential recession in the U.S. He believes that the Fed is lagging behind in responding to the economic situation and expects further rate cuts. He pointed out that consumer debt levels are high, credit card interest rates are too high, future economic data may be weak, and he predicts that September 2024 may be the beginning of an economic downturn
According to the financial news app Zhitong Finance, Jeffrey Gundlach, the founder of DoubleLine Capital known as the "new bond king," stated that he was not surprised by the Federal Reserve's significant 50 basis point rate cut, but due to the possibility of the U.S. economy already starting to contract, further rate cuts may be needed.
On Wednesday, the Federal Open Market Committee voted 11-1 to lower the benchmark interest rate from a 20-year high of 5.25%-5.5% to a range of 4.75%-5%, marking the first rate cut since the outbreak of the pandemic. Earlier this week, Gundlach expressed his belief that the Fed led by Powell would cut rates by half a percentage point. He mentioned at a conference in California that the Fed is "behind the curve" as layoffs indicate that the economy is entering a recession.
Gundlach stated on Wednesday that the Fed is still "slightly" behind, with some bond yields around 3.50%. He noted that since July 31, the two-year U.S. Treasury yield has dropped by over 50 basis points, which may have bolstered his confidence in the Fed cutting rates by half a percentage point.
"I think Powell is more comfortable with his current pace in line with the bond market. Yields in the bond market have been very stable over the past two years, with the five-year and even ten-year Treasury yields at around 3.50%," he said.
Bond market experts indicated that this level "suggests that the terminal rate for the federal funds rate is 3.50%."
Gundlach remarked, "I think Powell is very uncomfortable with what's happening."
Gundlach pointed out signs of economic trouble, including excessively high credit card rates. "Consumer debt levels are very high. I expect the economic data in future reports to be weaker. I still believe that the history books are likely to say that September 2024 was the start of an economic recession."