DoubleLine Capital CEO Jeffrey Gundlach said the Federal Reserve needs to ease policy quickly amid an economic slowdown

September 17, 2024 | 03:24pm

DoubleLine’s Gundlach says the Fed needs to cut rates quickly, sees a half-point reduction Wednesday

DoubleLine Capital CEO Jeffrey Gundlach said the Federal Reserve needs to ease policy quickly amid an economic slowdown

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.

This story originally appeared on: CNBC - Author:Yun Li