Gundlach: Beware of ‘Blockhead’ Fed on Rates

DoubleLine CEO Jeffrey Gundlach says the Federal Reserve has not learned from its other central bankers, and if it moves to raise interest rates mid-year it may regret it.

“The Fed is intent on being a blockhead,” Gundlach said Tuesday on a conference call, describing the characters in the animated “Gumby and Pokey” show.

Still, he acknowledged that the Fed may not raise rates if deflationary figures continue to dominate headlines.

The fixed-income expert also is concerned about the continued emphasis on low interest rates around the globe.

“Central banks around the world have put together a lot of intricate policies,” he said. “Ultimately, the tower will not be able to stand.”

Low interest rates and central bank buying mean some $2 trillion of foreign bonds are producing negative yields.

But Gundlach sees the U.S. 10-year yield dipping below 2% and then rebounding to 3%.

“I do think inflation is not a problem” over the next year or two, he explained, though Gundlach said it could be a few years or so from now.

Dollar Domination

Gundlach says he would not be a contrarian and short the dollar. “Don’t do it,” he said. “The dollar … is going to continue to be a world beater until something painful … happen[s.]”

“Everybody’s bullish on the dollar now,” the fixed-income manager added. Plus, currency trends “go on for a very long time.”

But he also acknowledged the negative impacts that a strong U.S. currency can have.