‘Bond King’ Gundlach Says Fed Rate Cuts Are Effectively Impossible

Jeffrey Gundlach, chief executive officer of DoubleLine Capital and known on Wall Street as the “Bond King,” said he sees little chance that the Federal Reserve will cut interest rates.

Speaking on Fox News’ “Sunday Morning Futures” on May 17, Gundlach said investors had expected two rate cuts this year, but inflation has not cooperated. With the two-year Treasury yield trading nearly 50 basis points above the benchmark policy rate, “it’s impossible” for the Fed to cut rates, he said. The two-year yield is widely viewed as a gauge of expectations for Fed policy.

Gundlach also said a jump in oil prices tied to the war involving Iran will continue to affect inflation. The US consumer price index rose 3.8% in April, the fastest pace since May 2023. “According to DoubleLine’s model, the next CPI reading will start with a 4,” he said. The Fed held its benchmark rate at 3.5% to 3.75% at its Federal Open Market Committee meeting in March.

Gundlach also raised concerns about stock valuations. He said the market had been “surprisingly strong” despite recent turmoil, and that stocks surge when the Fed takes no action on inflation. He described the market as “very overvalued” and “speculative.” Corporate earnings have continued to top expectations by a wide margin, fueling speculative fervor, he added.

He also voiced concern about the private credit market. “The private credit market always seems to need new investors,” Gundlach said. “It could be because of greed from asset managers. They always want more assets under management.”

On Kevin Warsh, who has won Senate confirmation as the next Fed chair, Gundlach said he will take office at a difficult time.

Lee Song-ryeol, Hankyung.com reporter yisr0203@hankyung.com