DoubleLine Capital CEO Jeffrey Gundlach said Tuesday that the Federal Reserve needs to ease policy swiftly amid the current economic slowdown, seeing a half-point interest-rate reduction this week. “The Fed just follows the two-year Treasury and the two-year Treasury is down at 3.6% so the Fed needs to cut rates [by] 150 [basis points] pretty quickly,” Gundlach told CNBC’s Scott Wapner at the Future Proof Conference in Huntington Beach, California. “I think they are going to start with 50 [basis points] tomorrow.” Markets currently are pricing in a 60% chance that the Fed will approve a 50 basis point reduction at the conclusion of its policy meeting Wednesday, according to the CME Group’s FedWatch tool. A quarter-point rate cut had been the consensus as recently as a week ago. Fed funds, the central bank’s benchmark overnight lending rate, currently stand at 5.25% to 5.50%. But the 2-year Treasury yield was last at around 3.59%. The size of the Fed’s first rate cut in years has been a point of debate on Wall Street. On the one hand, a rate cut could help boost earnings growth for companies following a period of high borrowing costs and stubborn inflation. On the other hand, a reduction steeper than previously expected could spark concerns about the health of the economy, which has shown some signs of weakness. “We have a serious chance of a deflationary situation that’s occurring … when I look at the price of oil, … prices broadly, and layoffs that are coming, which may lead to zero wage growth,” Gundlach said. “So I think the Fed is well behind the curve and should get their act together.” Recent inflation data showed that price pressures have eased substantially since their meteoric rise in 2021-22. One gauge of consumer prices showed 12-month inflation at its lowest since February 2021, while wholesale price measures indicated pipeline price increases are mostly under control. ‘We are in a recession right now’ Gundlach, a noted fixed income investor whose firm managed $96 billion as of 2023, said he stood by his call that the U.S. has been in a recession. “I said on July 31… the history books would say the United States was in a recession in September 2024. And I still believe it’s true,” Gundlach said. “We are in a recession right now.” He has long cautioned investors against ignoring the yield curve inversion phenomenon, where 2-year Treasurys yield more than 10-years. The yield-curve inversion has been a reliable recession predictor and signs of a reversal could be indicative of an imminent economic downturn. He believes the recent un-inversion of the yield is highly suggestive of a recession.
Source: www.cnbc.com