Jeffrey Gundlach says Fed ‘obviously behind the curve’, will hike rates more than expected
DoubleLine Capital CEO Jeffrey Gundlach said Friday that the Federal Reserve was failing in its battle against soaring inflation and that the central bank should accelerate its rate hikes this year.
“One thing we can all agree on is that inflation continues to surprise on the upside. The Fed is obviously behind the curve. … They’re going to have to raise rates more than the market still thinks. “, Gundlach said Friday on CNBC’s “Halftime Report.” “I suspect they’ll keep raising rates until something breaks, which always happens.”
His comments came as inflation hit a new four-decade high, with the consumer price index rising 7.5% year-on-year. In 2020, the Fed adopted a new monetary policy framework in which it seeks to achieve an average inflation of 2% over time and tolerate price increases above that level for a period of time.
Gundlach said he doubts searing inflation will decelerate as much as central bankers expected, in part because of protracted supply chain challenges.
“I am expecting [inflation] going to go down, but I think it’s going to be disappointing, the pace and the degree to which it goes down,” Gundlach said. “We think inflation is very likely to print at least 5% for 2022.”
Jeffrey Gundlach speaking at the SOHN 2019 conference in New York City on May 6, 2019.
Adam Jeffrey | CNBC
The self-styled bond king predicts five interest rate hikes this year, adding that there is a 1 in 3 chance the Fed will raise rates 50 basis points higher than usual in March.
After the release of inflation data on Thursday, St. Louis Fed Chairman James Bullard said he was open to a 50 basis point hike in March, an increase of 0.5 %. He also said he wanted to see a full percentage point of rate hikes by July. However, the presidents of the federals of Atlanta, Richmond, Virginia and San Francisco rejected the idea of a double increase.
Gundlach said it would be a “challenging environment” for risk assets as the Fed begins its tightening cycle.
“Interest rates are going up. Every risky asset needs to be repriced to those higher interest rates,” he said.
Gundlach sees the 10-year Treasury yield surpassing 2.5% this year. He also said, “It’s possible the 10-year-old will peek at 3%.”
The benchmark Treasury yield has risen sharply in 2022, rising nearly 50 basis points from 1.51% at the end of last year. The rate topped 2% for the first time since 2019 on Thursday.
Correction: In 2020, the Fed adopted a new monetary policy framework. An earlier version incorrectly indicated the year.