DoubleLine Capital CEO Jeffrey Gundlach stated that investors should not expect any interest rate cuts at the upcoming Federal Reserve policy meeting. "People were anticipating two rate cuts this year, but the inflation market simply hasn't cooperated," Gundlach said. "In my view, when the 2-year Treasury yield is nearly 50 basis points above the federal funds rate, a rate cut is off the table."
Gundlach noted that newly confirmed Fed Chair Kevin Warsh is taking office during a "difficult period." With the war in Iran driving oil prices sharply higher and feeding into U.S. inflation reports, he predicted the upward trend will continue following April's Consumer Price Index jump of 3.8%, the fastest pace since May 2023. Gundlach indicated that DoubleLine's models suggest "the next headline CPI reading will start with a 4."
The stock market has performed "remarkably strongly" amid this volatility. "When the Fed does nothing about the inflation problem, the stock market just keeps going up," he said.
Although Gundlach has been "very, very bullish on commodities" for roughly the past three years, with negative real bond yields and predicted market interest shifting away from speculative assets like Bitcoin, investors have few alternatives besides stocks. However, he noted that the stock market itself currently carries embedded risks. "Market valuations are very high, speculative activity is elevated, yet earnings continue to significantly exceed expectations," Gundlach stated. "I think this is fueling the speculative frenzy."
Gundlach reiterated his warnings about private credit. When asked if he was concerned about the sector, he responded, "I'm certainly concerned." He added, "The private credit market always seems to have this characteristic of constantly needing new investors. Perhaps it's just sponsor greed—they always want more and more assets under management."
Comments