Billionaire Jeffrey Gundlach, also known as the “Bond King,” expects the Federal Reserve to raise interest rates at its March meeting next week, which “would be the last rate hike,” he said. In addition, Gundlach warned: “Inflationary policy is back in play with the Federal Reserve.”
Doubleline CEO Jeffrey Gundlach on Fed rate hikes
Jeffrey Gundlach, CEO and chief investment officer of investment management firm Doubleline, shared his expectations for the Fed’s rate hike in an interview with CNBC on Monday. Gundlach is nicknamed “the Bond King” after he graced the cover of Barron’s as “The New Bond King” in 2011. According to Forbes, his net worth is currently $2.2 billion.
Following the collapses of Silicon Valley Bank and Signature Bank, many economists have revised their rate hike predictions. Global investment bank Goldman Sachs, for example, no longer expects the Fed to raise interest rates in March.
As to whether the Fed will raise interest rates at its next Federal Open Market Committee (FOMC) meeting next week, Gundlach said: “I think at this point the Fed is not will reach 50 (basis points). I would say 25”. He elaborated:
To save, more or less, the program and its credibility, they will probably raise rates 25 basis points. I think that would be the last increase.
Noting that the Silicon Valley Bank fallout is “really putting a wrench in (Fed Chairman) Jay Powell’s game plan,” the executive emphasized: “I wouldn’t do it. But what do you do in the context of all these messages that have been going on for the last six months, and then something happens that you think you’ve figured out?
On Sunday, the Treasury Department, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) unveiled a plan to support depositors at failed Silicon Valley Bank and Signature Bank. The Treasury Department will provide up to $25 billion from its Exchange Stabilization Fund to cover any potential losses from the financing program. The Federal Reserve also announced that it will grant loans for up to one year to entities affected by bank failures.
While anticipating a rate hike in March, Gundlach acknowledged the possibility that the Federal Reserve will not raise rates, noting that the market is currently pricing this possibility as a “coin toss of sorts.”
Gundlach also reiterated his warning of a coming recession, citing the dramatic steepening of the Treasury yield curve that usually precedes an economic downturn. Noting that “in all past recessions going back decades, the yield curve starts to invert a few months before the recession hits,” the billionaire opined:
I think inflationary policy is back in play with the Federal Reserve… putting money into the system through this lending program.
Do you agree with Jeffrey Gundlach? Let us know in the comments section.
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