Jeffrey Gundlach, the billionaire money manager and chief investment officer of DoubleLine Capital, said he doesn’t think the Federal Reserve will cut interest rates next week, but the chances of multiple cuts this year are high amid growing signs of an economic slowdown.
Jeffrey Gundlach, co-founder and chief executive officer of DoubleLine Capital LP, speaks during the Sohn Investment Conference in New York, U.S., on Monday, May 6, 2019. The conference gathers top investors from around the globe for a day of fresh market insights. Photographer: Alex Flynn/Bloomberg
“July I think is a pretty good possibility,” Gundlach said Thursday during a webcast about the DoubleLine Total Return Bond Fund. “By September is virtually a lock at this point and maybe even a 50 basis pointer in September if the bond market keeps tightening the noose.”
Other calls Gundlach made:
- It’s “extremely probable” the Fed will have to cut rates not just once but maybe up to four times, based on bond market predictions.
- There’s a 40% to 45% chance of a recession within six months and a 65% chance within a year. That’s higher than he previously forecast, because trade tensions are showing signs of having an economic effect.
- Fed Chairman Jay Powell’s presentation next Wednesday will be lightning fast given the difficult position the Fed faces on rates. The central bank’s dot plot still projects one hike, but the bond market is pricing in multiple rate cuts.
- “I can’t imagine what they’re going to do with the dots,” said Gundlach, adding that it would be odd if the bankers put a cut in the dot plot and don’t immediately deliver one.
- Gundlach said the Fed may blame tariffs for why it’s deviating from previously iterated outlooks.
- Trade tensions are having an impact on the economy and “will lead to further vacillations and volatility in markets.” He likened the clash between President Donald Trump and Chinese President Xi Jinping to an immovable object meeting an irresistible force.
- He said Joe Biden is unlikely to win the Democratic nomination next year, noting that the former vice president failed to win a single delegate in previous presidential campaigns. He nicknamed Biden “Jurassic Joe,” not because he’s old but because “I think of him as a politician from a bygone era.”
- The Fed is “strongly signaling” they’re open to the idea of manipulating U.S. interest rates down. Without that intervention, he said, rising deficits would drive up rates on 10-year Treasuries to 6% by 2021.
- He warned again of risks in corporate debt, which he said is highly leveraged and over rated -- “a cocktail for trouble when we get to the next recession.”
- On Powell’s balancing act: There’s a huge divergence between the last dot plot and what the bond market has been doing.
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