- Billionaire investor Jeffrey Gundlach says it’s “very likely” that the Fed will raise interest rates by 50 basis points at its next meeting.
- The ‘Bond King’ pointed to a strong US economy that could again cause inflation to accelerate.
- Federal Reserve Board member Jerome Powell opened the door to a possible rate hike in hawkish testimony on Tuesday.
Billionaire investor Jeffrey Gundlach has warned that it is “extremely likely” that the Federal Reserve will make an extraordinary rate hike as the US economy remains overheated.
The so-called “Bond King” is responding to Federal Reserve Board member Jerome Powell’s congressional testimony on Tuesday that interest rates could rise “higher than previously expected” following recent strong economic reports. Data showing a tight US labor market and high consumer spending have fueled speculation that the central bank will need to continue its tightening policy to keep inflation in check.
“After Powell’s testimony today, the betting market’s chances of a 50-basis-point increase have increased significantly,” Gundlach said on DoubleLine’s investor webcast on Tuesday. per CNBC.
“Short-term rates have risen significantly and the yield curve has inverted further. The recent surge in short-term government bond rates. Yields on two-year Treasury bonds topped 5% this week for the first time since 2007.
Following Powell’s speech, investors expect a 50 basis point gain at this month’s Federal Open Market Committee meeting. This would mark a reacceleration of US monetary tightening from his 25 basis points increase in February, the lowest since early 2022.
At the same time, key indicators of recession are giving their biggest warning yet. The inversion of the U.S. Treasury curve, measured by the difference between 2-year Treasury yields and 10-year Treasury yields, reached a record 103.5 basis points on Tuesday, signaling higher expectations of further rate hikes.
Federal Funds rates have tracked the two-year Treasury yield for years, Gundlach said. “It supports the idea that the Fed is likely to raise the federal funds rate to 5% at its next meeting,” Gundlach said.
He added that the only thing that could stop a big rate hike is weakening labor market data.
“The only way this doesn’t happen is if employment data and the unemployment rate unexpectedly turn downward, which is not the pattern these days,” Gundlach said. “I think it’s a rock for the Fed to go with at least 50 basis points if it’s in line with expectations or better.”
Investors are now eagerly awaiting the next set of key economic data that will give new clues about the central bank’s future policy actions.