Taps Coogan – November 3rd, 2022

Jeffery Gundlach, the founder of DoubleLine Capital and the manager of one of the largest funds in the world, spoke with CNBC after yesterday’s FOMC meeting to share his thoughts on yesterday’s FOMC meeting.

 

Jeffery Gundlach on what the Fed will do from here:

“I think they’re going to do what they should because when I glue these (Fed) statements together and try to figure out how they could be consistent with each other, I think what Powell said, without saying it out loud, is ‘We’re not going to raise by 75 (basis points) at the next meeting as the base case.’ I think that’s what he meant by ‘We’re respecting how far we’ve gotten. We know there are lags.’ I think we’ll probably get slowing down. I think the bond market has basically got the 2-year Treasury at 4.5% and (the Fed) is talking about 4.25%-4.5%, so they are pretty in sync.”

“Quantitative tightening has an effect too on things, Remember 2018, December, when we were on autopilot with rate hikes and quantitative tightening and they had to pivot almost immediately?”

“The big inflation pop that caused the Fed to change with all these rate hikes was fueled primarily by the terrible CPI of the first few months of this year… What that means is those numbers are going to be rolling off (year-over-year)… It’s coming down next year. We’ll end this year at around 7%. We’ll probably be below 4.5% as a base case by the May reading… The money supply coming down is already a fact… it’s something that’s already percolating through… We’re getting deeper into the process… Look, the economists think the inflation rate is going to go from 8.2% on the CPI to something like high twos or mid twos by the end of 2023… and then the weird part of the forecast is they say it is going to stay there right at two like a rock for many quarters. If you are manipulating a seven point decline from peak to trough in that compressed of a timeframe, I think you chances of it stopping at two are very low.”

We couldn’t agree more, though any decline in CPI is predicated on the absence of an energy crisis this winter. There is more to the interview, so enjoy it above.