DoubleLine founder Jeff Gundlach stated on Wednesday in the program Closing Bell on CNBC that he is unclear why the Federal Reserve is still waiting for further interest rate hikes.
"What are you still waiting for? You just raised interest rates here a moment ago," he said, referring to remarks by Federal Reserve Chairman Kevin Warsh at a press conference after the central bank's interest rate meeting about the strong macroeconomic environment. "We are moving towards an overall CPI of 4%, and commodity indices are also rising in a bull market. I don't understand why the Federal Reserve is so reluctant to take action."
After the Federal Reserve decided to maintain interest rates unchanged at its October meeting, Gundlach made the aforementioned comments.
At the September meeting, after the Federal Reserve raised interest rates by 25 basis points, Gundlach stated to CNBC that the central bank should have raised rates even more. At that time, he believed that the Fed needed to raise rates by 50 basis points at once, rather than doing so in multiple meetings over time.
“I just feel that the Federal Reserve is a bit behind the times right now,” he said on Wednesday. Gundlach pointed out that the Fed’s overnight interest rate of 3.75% to 4% is significantly lower than the yield on two-year U.S. Treasury bonds, which is around 4.7%. He believes this indicates that the Fed needs to raise interest rates more significantly than it has already done.
Despite the decision to maintain interest rates unchanged this time, tools from CME indicate that the market still believes there is an 85% probability that the Federal Reserve will raise interest rates by 25 basis points at its December meeting. The Fed stated in its statement that it will use more information to determine the appropriate policy to ensure that inflation returns to the 2% target; however, Warsh reiterated at a press conference that it is not yet possible to determine future policy decisions.
"If oil prices do not show a significant decline, I think they will have to raise interest rates in December," said Gundlach. On Wednesday, U.S. oil prices continued to trade above $100 per barrel.
He also stated that his investment strategy has not changed since the resolution was announced: 30% of his assets are allocated to stocks, among which he has a particular preference for the equal-weight S&P 500 to avoid excessive exposure to what he refers to as potential artificial intelligence “problems”; 30% are allocated to bonds, 20% to commodities, and another 20% is held in “dry powder” cash.
Warsh also announced that one of the eight Federal Reserve meetings scheduled for 2027 and two in 2028 will focus on policy strategies, and no votes will be taken on the federal funds rate. Gundlach stated that this move is not surprising and added that he supports reducing the number of interest rate meetings to six from now on.
“I don’t think eight meetings are really necessary,” he said. “The meetings are coming too quickly… At least this way you’ll still have a few months of data to process.”
