'Bond king' Jeffrey Gundlach urges Fed to raise rates to 3% immediately
Gundlach: Excessive stimulus fueled inflation
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Billionaire investor Jeffrey Gundlach urged the Federal Reserve to ramp up its inflation battle at the conclusion of its Wednesday meeting with an interest rate hike dramatically larger than what Wall Street expects.
Gundlach, the CEO of DoubleLine Capital, said the U.S. central bank should immediately raise its target interest rate to 3% – an increase of 200-basis points from the current range of 0.75% to 1%.
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"The Federal Reserve should raise the Fed Funds rate to 3% tomorrow, in my opinion," Gundlach tweeted on Tuesday.
By comparison, most Wall Street traders expect the U.S. central bank to approve a 75-basis point rate hike at its Wednesday meeting, which would already mark the steepest increase since 1994. That would lift the federal funds target range to 1.5% to 1.75%.
Markets started pricing in the mega-sized 75-basis point move following the hotter-than-expected May inflation report, which showed that prices surged 8.6% last month – the fastest pace since December 1981. A separate survey tracking consumer expectations also showed that most Americans expect prices to rise even faster over the next year, a worrisome sign for the U.S. central bank, which believes that such prophecies can become self-fulfilling.
Jeffrey Gundlach, co-founder and chief executive officer of DoubleLine Capital LP, speaks during the Sohn Investment Conference in New York, on May 6, 2019. (Alex Flynn/Bloomberg via Getty Images / Getty Images)
Many economists believe the Fed is acting too late to quell inflation – so does Gundlach.
The so-called "Bond King" has been a frequent critic of the central bank, taking aim at policymakers for not moving more quickly to withdraw pandemic-era support.
"Excessive stimulus caused inflation," Gundlach tweeted earlier this month. "An intelligent twelve year old was able to predict it."
Chairman Jerome Powell has so far avoided spooking the markets with surprise moves and previously rebuffed the possibility of a 75-basis point hike. But that was before the April and May inflation reports came in hotter than expected, reviving the possibility of a previously unthinkable 75-basis point increase. Powell also pledged that any steps the Fed takes would be guided by the latest economic data.
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"What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down," Powell said last month. "And if we don’t see that, then we’ll have to consider moving more aggressively."