DoubleLine Capital CEO Jeffrey Gundlach said Friday the Federal Reserve is failing in its battle against a spike of inflation, and the central bank is likely to accelerate its rate hikes this year.
“One thing we can all agree on is inflation just continues to surprise on the upside. The Fed is obviously behind the curve. … It’s going to have to raise rates more than the market still thinks,” Gundlach said Friday on CNBC’s “Halftime Report.” “My suspicion is they are going to keep raising rates until something breaks, which always happens.”
His comments came as inflation surged to a fresh four-decade high with the consumer price index rising 7.5% year over year. In 2020, the Fed adopted a new monetary policy framework where it seeks to achieve inflation that averages 2% over time and tolerate price rises above that level for a while.
Gundlach said he’s doubtful that the red-hot inflation will decelerate as much as the central bankers are expecting due in part to extended supply chain challenges.
“I do expect [inflation] to come down, but I think it’s going to be disappointing, the pace and the degree to which it’s going to come down,” Gundlach said. “We think inflation is very likely to print at least 5% for 2022.”
The so-called bond king forecast five interest rate hikes this year, adding there’s a 1 in 3 chance the Fed will increase rates by a larger-than-usual 50 basis points in March.
On Thursday after the release of inflation data, St. Louis Fed President James Bullard said he was open to a 50 basis point hike in March, or an increase of 0.5%. He also said he wanted to see a full percentage point of rate rises by July. Still, the presidents of the Atlanta, Richmond, Virginia, and San Francisco Feds pushed back against the idea of a double hike.
Gundlach said it’s going to be a “tough environment” for risk assets as the Fed embarks on its tightening cycle.
“Interest rates are going higher. Every risk asset has to reprice based upon these higher interest rates,” he said.
Gundlach sees the 10-year Treasury yield to exceed 2.5% this year. He also said, “It’s possible the 10-year takes a peek at 3%.”
The benchmark Treasury yield has spiked a great amount in 2022, rising almost 50 basis points from 1.51% at the end of last year. The rate topped 2% for the first time since 2019 on Thursday.
Correction: In 2020, the Fed adopted a new monetary policy framework. An earlier version misstated the year.
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