Jeffrey Gundlach speaks at the 2019 SOHN Conference in New York on May 5, 2019.
Adam Jeffrey | CNBC
Jeffrey Gundlach, CEO of DoubleLine Capital, believes the Federal Reserve is once again missing the big picture.
“The Fed is like Mr. Magoo, driving around and hitting things. Then it got organized and inflation went down,” Gundlach said during a webcast for investors Tuesday night. . “But over the past five months, we’ve seen a resurgence in the uptrend. This has caused the Fed to return to short-termism, overreacting to short-term indicators and becoming less strategic.”
Gundlach, a prominent fixed-income investor whose firm manages $95 billion, made the comments before Wednesday’s release of the latest consumer price index. The CPI rose a seasonally adjusted 0.4% month-on-month, bringing the 12-month inflation rate to 2.9%.
Core CPI, which excludes food and energy, was slightly lower than expected on both a monthly and annual basis. While this number compares favorably with expectations, it still shows the Fed still has work to do to reach its 2% inflation target.
“The Fed is zigzagging because of month-on-month changes in the CPI,” Gundlach said. “The market was aggressively assuming the Fed would cut rates, but there will only be one rate cut in 2025.”
Since September, the Federal Reserve has taken the unprecedented step of cutting interest rates by half a percentage point, which has since been cut completely. In December, the central bank predicted it would cut interest rates only twice in 2025, fewer than the four cuts it had previously expected.
“The Fed is currently aligned with the market, and the market has not given any signals of further change,” Gundlach said. “This is consistent with the Fed delaying monetary policy changes.”
According to CME Group, futures pricing continues to imply that the Fed is almost certain to keep policy on hold at its January 28-29 meeting, but in quarter-point increments. Under this assumption, the central bank is leaning toward two quarter-point rate cuts throughout the year.
