The CEO of DoubleLine Capital, Jeffrey Gundlach, predicts one more rate increase from the Federal Reserve before the end of their tightening cycle. He stated on Wednesday on CNBC’s “Closing Bell: Overtime” that “I think one more…it’s tough to make the statement ‘ongoing increases’ with an ‘s’ at the end of the word ‘increase’ and do zero unless you had very substantial change in economic conditions.”
On Wednesday, the Federal Reserve increased its benchmark interest rate by 0.25%, setting its target range to 4.5% to 4.75%, the highest level since 2007. The Fed’s statement indicated that they continue to see a need for “ongoing increases in the target range”.
Jeffrey Gundlach, also known as the “bond king”, noted that Fed Chairman Jerome Powell had a “clarifying” statement during the press conference, mentioning that real yields are positive along the yield curve. Gundlach added that this was referring to Treasury Inflation-Protected Securities (TIPS) whose yields have stabilized.
Gundlach stated that Powell was examining the TIPS market, which saw a substantial rise in yields last year and was a major obstacle for risk assets in the stock market. He noted that the yields have stabilized and that he believes real yields will not increase in the early part of this year, providing some breathing room.
Stocks had a strong performance in January, with technology stocks leading the way. The S&P 500 rose 6.2% in January, marking its best start to the year since 2019, while the tech-focused Nasdaq Composite saw a 10.7% increase, its best monthly performance since July.
During Powell’s press conference, the Federal Reserve chairman stated that the central bank could implement a few more interest rate increases to reach their inflation target. He mentioned that they have already raised rates by 4.5% and that a few more increases may be necessary as inflation remains high. He explained, “Why do we think that’s probably necessary? We think because inflation is still running very hot.”
When asked if Gundlach predicts the Fed to reduce interest rates this year, he replied that it depends on the inflation data that will be received. He mentioned that he leans towards the possibility of a rate cut in the latter half of the year, but he is not firmly committed to this idea.
Additionally, Gundlach noted that the likelihood of a recession this year has decreased but is still above 50%.