Gundlach says the Fed should slow rate hikes as it pushes the economy into recession
Jeffrey Gundlach, CEO of DoubleLine Capital, said the Fed should ease the pace of interest rate hikes as the economy is on the brink of recession.
“The Fed should have done more earlier,” Gundlash said in an interview on CNBC’s “Closing Bell: Overtime.” “Monetary policy has long and variable delays. But we are tightening it now for a while. The effect of these restrictions will build up into a recession. … I think the Fed should slow down on these rate hikes.”
The Federal Reserve on Wednesday raised benchmark interest rates by another three-quarters of a percentage point to a range of 3%-3.25%, the highest level since early 2008. The central bank also indicated that it would raise rates to 4.6% in 2023 before that. . The central bank has stopped its fight against spiraling inflation.
“I don’t think they will be able to achieve that. I think the economy will show signs of weakness,” Gundlash said of the Fed’s forecast to raise interest rates to 4.4% by the end of 2022.
A series of large interest rate increases is expected to slow the economy. The Federal Reserve’s summary of economic forecasts showed that the unemployment rate is expected to rise to 4.4% by next year from the current 3.7%. Meanwhile, GDP growth is expected to decline to just 0.2% for 2022.
“I think the unemployment rate is going to go up and I think we’re heading into a recession, and I think the Fed should have nailed that differently,” Gundlash said. “But now they are so committed to that 2% that I think the odds of a recession in 2023 are very high. I mean, I’d put them at 75%.”
The so-called bond king added that the inverted yield curve is “really flashing red for economic problems.” The yield curve inverts when short-term Treasury prices rise above long-term yields. Many economists view the 2- to 10-year portion of the yield curve as more predictive of a potential recession.
The 2- to 10-year curve first inverted on March 31, then returned to positive mode before inverting again briefly in June. This part of the curve has been inverted since early July.