Tags: Gundlach | Fed | raise | rates

DoubleLine's Gundlach: Fed Has No Reason to Raise Rates

By    |   Tuesday, 27 January 2015 02:30 PM

While economists' consensus is that the Federal Reserve will increase interest rates around mid-year, star investor Jeff Gundlach, CEO of DoubleLine, sees no reason for a move.

"I think it's obvious the world is dealing with deflationary situation," he tells CNBC. He cites flattening yield curves, a strengthening dollar and collapsing commodity prices.

"You wonder what they [Fed officials] are thinking about raising interest rates," Gundlach states. "They say something contradictory — part of the gibberish — their mandate is stable prices but define stable as rising 2 percent per year. Last time I checked was not the definition of stable," he added.

"Their [inflation] goal is 2 percent. You haven't had 2 percent in like forever, and it's going the other way."

The personal consumption expenditures price index rose only 1.4 percent in the 12 months through November.

"What is the logic for raising short-term interest rates? The logic they don't like having no tools," Gundlach explains. "So when and if the economy rolls over, [and the federal funds rate is at zero,] you're in a very bad situation."

He's bullish on gold. "Gold does act as a safe haven, and it seems like gold is predicting trouble correctly," Gundlach notes. "I increased my position in gold a couple weeks ago."

He may be pleased to learn that Morgan Stanley's economic team doesn't expect a rate hike until March 2016.

The reason? A downward revision in the economists' forecast for oil prices, they wrote in a commentary obtained by Business Insider. They now forecast Brent crude will average $52 a barrel this year, down from their December prediction of $88.

While every 10 percent drop in oil prices lifts GDP growth by 0.1 percentage point, it trims inflation by 0.5 point, the economists say.

"Moderating growth beyond Q1, and more importantly, falling core inflation and tenuous inflation expectations, alongside little sign of building wage pressures present a strong case for patience" by the Fed, they write.

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While economists' consensus is that the Federal Reserve will increase interest rates around mid-year, star investor Jeff Gundlach, CEO of DoubleLine, sees no reason for a move.
Gundlach, Fed, raise, rates
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2015-30-27
Tuesday, 27 January 2015 02:30 PM
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