DoubleLine Capital CEO Jeffrey Gundlach believes the Federal Reserve is missing the bigger picture again.
“The Fed looks like Mr. Magoo, driving around, bumping into things. Then became systematic, got inflation to come down,” Gundlach said in an investor webcast Tuesday evening. “But for the past five months we’ve had another rising trend. This has got the Fed back into short-termism, reacting too much to short-term data, not being strategic.”
Gundlach, a noted fixed-income investor whose firm manages $95 billion, made the comments before the latest reading of the consumer price index on Wednesday. The CPI increased a seasonally adjusted 0.4% on the month, putting the 12-month inflation rate at 2.9%
Excluding food and energy, the core CPI rate came in slightly lighter than expected both on a monthly basis and an annual basis. While the numbers compared favorably to forecasts, they still show that the Fed has work to do to reach its 2% inflation target.
"CPI month-over-month change has got the Fed zig-zagging," Gundlach said. "The market has gone from an aggressive assumption of Fed cuts to just one cut in 2025."
The Fed has cut benchmark rates by a full percentage point since September, a month during which it took the unusual step of lowering by a half point. In December, the central bank projected only two quarter-point rate cuts in 2025, fewer than the four cuts it previously forecast.
"The Fed is now in sync with the market, and the market is not given further signals for a change," Gundlach said. "That is consistent with the Fed slowing down its change of monetary policy."
Futures pricing continued to imply a near certainty that the Fed would stay on hold at its Jan. 28-29 meeting but leaned more toward two quarter-point rate cuts through the year, assuming quarter percentage point increments, according to CME Group.
