DoubleLine founder Jeff Gundlach told CNBC’s “Closing Bell” on Wednesday that it’s unclear why the Federal Reserve is waiting to hike rates further.
“What are you waiting for? You just upgraded the economy right here,” he said, referring to Fed Chairman Kevin Warsh’s comments about a strong macroeconomic environment during the central bank’s post-decision news conference. “We’re headed to 4% handle headline CPI. The commodity index is rising in a bull market, and I don’t understand why the Fed is so reluctant to move.”
His comments come after the central bank decided to leave interest rates unchanged at its October meeting.
Following the Fed’s decision to hike rates by 25 basis points at its September meeting, Gundlach told CNBC that the central bank should have raised interest rates by even more. He argued back then that the bank needed to raise rates by 50 basis points, rather than hike them gradually over various meetings.
“I just think that the Fed is a little bit behind the curve right now,” he said Wednesday. Gundlach noted that the Fed’s 3.75%-4% overnight rate is significantly below that of the 2-year Treasury note, which trades around 4.7%. That is a sign the Fed needs to hike more than it already has, he said.
Despite holding rates steady, there is still an 85% chance the Fed raises interest rates by 25 basis points at its December meeting, according to CME’s FedWatch tool. The Fed said in a statement it will use further information to determine the correct policy to ensure a return to the Fed’s inflation goal of 2%, though Warsh at a press conference reiterated future policy decisions can’t be determined at this time.
“Absent a crack in the oil price, I think they have to hike in December,” Gundlach said. U.S. oil prices continued to trade above $100 per barrel on Wednesday.
He also said his investment strategy remains unchanged after the decision, with 30% of his portfolio allocated to equities — where he particularly favors the equal-weight S&P 500 to avoid too much exposure to what he calls potential artificial intelligence “problems” — 30% to bonds, 20% toward commodities and 20% in “dry powder.”
Warsh also announced that one meeting in 2027 and two in 2028 of the scheduled eight Fed gatherings will focus on policy strategy, and no vote on the fed funds rate will take place. Gundlach said the move wasn’t surprising, adding he was in favor of having only six rate-setting meetings starting immediately.
“I don’t think eight meetings is really necessary,” he said. “It seems like they come up really quickly … at least you have a couple months worth of data to filter in.”
