Jeffrey Gundlach speaks at the 2019 SOHN Conference in New York City on May 5, 2019.
Adam Jeffery | CNBC
Jeffrey Gundlach, CEO of DoubleLine Capital, believes the Fed has once again lost sight of the bigger picture.
“The Fed looks like Mr. Magoo driving around and then getting systematic and getting inflation down,” Gundlach said on an investor webcast late Tuesday. “But over the past five months, we’ve had another uptrend. That’s brought the Fed back into short-termism, overreacting to short-term data and being unstrategic.”
Gundlach, a prominent fixed-income investor whose firm manages $95 billion in assets, made the comments ahead of Wednesday’s release of the latest consumer price index. After seasonally adjusting, CPI increased by 0.4% this month, and the 12-month inflation rate was 2.9%
Excluding food and energy, both the monthly and annual core CPI rates were slightly lower than expected. While these numbers compare favorably to forecasts, they still suggest the Fed has a lot of work to do to achieve its 2% inflation target.
“The month-to-month changes in the consumer price index have given the Fed a zigzag,” Gundlach said. “The market has gone from aggressive assumptions about a rate cut by the Fed to just one rate cut in 2025.”
The Fed has cut its benchmark interest rate by a full percentage point since September, taking the unusual step of cutting interest rates by half a percentage point in one month. In December, the central bank forecast only two 25-basis-point rate cuts in 2025, down from the four cuts previously forecast.
Gundlach said: “The Fed is now in sync with the market, and the market has not received further signals of changes.” “This is consistent with the Fed’s slowing of monetary policy changes.”
CME Group said that futures pricing continues to imply that the Federal Reserve will keep interest rates unchanged at its meeting on January 28-29, but prefers to cut interest rates twice throughout the year, assuming a rate cut of 25 percentage points.
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