DoubleLine Capital CEO Jeffrey Gundlach has expressed his belief that the Federal Reserve is once again overlooking the bigger picture. During an investor webcast, Gundlach likened the Fed’s approach to that of Mr. Magoo, driving around and bumping into things before becoming systematic and successfully reducing inflation. However, he noted that in the past five months, there has been a new rising trend that has led the Fed to focus too much on short-term data rather than adopting a strategic outlook.
Gundlach, a prominent fixed income investor managing $95 billion, shared these views prior to the latest consumer price index (CPI) reading. The CPI showed a 0.4% increase on a monthly basis, resulting in a 2.9% inflation rate over the past 12 months. The core CPI rate, excluding food and energy, was slightly below expectations both monthly and annually, indicating that the Fed still has work to do to achieve its 2% inflation target.
Gundlach highlighted the Fed’s reactive approach to the CPI month-over-month changes, causing fluctuations in market expectations from anticipating aggressive rate cuts to now projecting just one cut in 2025. The Fed has reduced benchmark rates by a total of one percentage point since September, with a half-point decrease in an unusual move that month. In December, the Fed revised its projection to only two quarter-point rate cuts in 2025, down from the previously anticipated four reductions.
Gundlach observed that the Fed’s alignment with market expectations signals a slowdown in its monetary policy adjustments. Futures pricing indicates a high likelihood that the Fed will maintain rates at its upcoming Jan. 28-29 meeting, but there is a leaning towards two quarter-point rate cuts throughout the year, assuming quarter percentage point increments, as reported by CME Group.
