Gundlach: Bond market has been saying Fed policy is too tight
So-called “bond king” Jeffrey Gundlach is sounding the alarm on the Federal Reserve’s rhetoric, suggesting the U.S. central bank should get in line with what the markets are seeing.
“The bond market has been saying that the Fed’s policy is too tight by a very large amount for the past several weeks, if not few months, and the Fed simply cannot ignore that,” Gundlach, the DoubleLine Capital co-founder and CEO, said during an exclusive interview on “Cavuto: Coast-to-Coast” Wednesday.
The Federal Open Market Committee (FOMC) delivered its interest-rate decision on Wednesday, following a two-day meeting, leaving rates unchanged in the range of 2.25 percent - 2.5 percent.
Gundlach predicts the Fed will set the table for a potential rate cut sometime in July or September. The central bank was one Fed member away from a rate cut this year and two votes away from two rate cuts this year.
The yield on the 10-year Treasury slipped to 2.0 percent after the Fed announced its keeping rates steady. Bond prices move in the opposite direction of yields and recession fears mount as the 10-year yield dipped lower from previous highs.
“The three-month bill yield compared to the 10-year Treasury yield has every bit the look of a recession coming within 12 months and maybe within six months because that rate is inverted,” Gundlach said.
The Fed's quantitative easing, which serves as an insurance policy against a recession, will put the icing on the cake for a future recession, Gundlach said
“Ironically, a lot of people think if the Fed eases it'll be an insurance policy against recession. But if past patterns are prologue, if we actually start steepening out the yield curve from an inversion three months to 10 years, that's actually highly coincidental with the coming recession.”