Tags: gundlach | fed | qe | lite

DoubleLine's Gundlach: Fed Will Embark on 'QE Lite Pretty Soon'

DoubleLine's Gundlach: Fed Will Embark on 'QE Lite Pretty Soon'
(Richard Drew/AP)

Tuesday, 17 September 2019 05:37 PM

Jeffrey Gundlach, chief executive of DoubleLine Capital, said on Tuesday that the repo-market squeeze makes it more likely that the Federal Reserve will resume expansion of its balance sheet “pretty soon.”

Gundlach told Reuters that the Federal Reserve will embark on “QE lite,” or quantitative easing, an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment.

“Is it an imminent disaster? No. The Fed is going to use this warning sign to go back to some balance sheet expansion,” Gundlach said Tuesday during a webcast for his $54 billion DoubleLine Total Return Bond Fund. It’s a way of “baby stepping” to more quantitative easing, he added, Bloomberg reported.

The central bank was forced to inject billions of dollars in cash into the markets Tuesday to quell the surge in rates on one-day loans backed by Treasury bonds -- known as repurchase agreements, or repos -- to as high as 10%, according to ICAP data. The Fed is likely to start expanding its balance sheet to “try to free up the plumbing of the banking system,” the money manager said.

The Federal Reserve Open Markets Committee is widely expected to cut its benchmark rate 0.25% when it meets Wednesday, the second reduction this year. The chances of a U.S. recession are 75% before the November 2020 presidential election, Gundlach said last week, citing signals including the August yield-curve inversion that has uninverted this month.

DoubleLine Total Return, which invests mostly in mortgage-backed securities, returned about 5.3% this year through Sept. 16, better than 65% of its Bloomberg peers. Its five-year annual average return is 3.4%, better than 82% of rivals.

Gundlach also said:

  • “It’s not a great idea to be betting on lower interest rates.” He added that investors have probably seen the low of the year in benchmark 10-year yields, which sank to a multi-year low of 1.42% earlier this month.
  • Fed policy makers will probably say as little as possible at Wednesday’s meeting.

Material from Bloomberg and Reuters has been used in this report.

© 2019 Thomson/Reuters. All rights reserved.

   
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Jeffrey Gundlach, chief executive of DoubleLine Capital, said on Tuesday that the repo market squeeze makes it more likely that the Federal Reserve will resume expansion of its balance sheet “pretty soon.”
gundlach, fed, qe, lite
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2019-37-17
Tuesday, 17 September 2019 05:37 PM
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