What You Need to Know
- The market could get overvalued in a couple of months, Gundlach cautioned.
- The investor noted that the Fed chairman used the word disinflation in his remarks Wednesday.
Investors were relieved to see Fed Chairman Jerome Powell’s relaxed demeanor Wednesday even as he talked tough and indicated the central bank needs to keep raising rates to control inflation, according to billionaire investor Jeffrey Gundlach.
The DoubleLine Capital CEO, chief investment officer and founder also cautioned that the market, which has rallied in recent weeks, could become overvalued in about two months.
Gundlach discussed the market’s reaction to Powell on CNBC’s “Closing Bell: Overtime” shortly after the Fed raised its benchmark interest rate by a quarter percentage point and the chairman spoke with reporters.
“There was just something about his demeanor after he read the statement, he just seems like he has confidence … and he feels comfortable in where he’s gotten to. And I think that everybody kind of sensed that. And he obviously did not fight back against market pricing,” Gundlach said.
The Fed made its eighth consecutive rate hike since March, slowing its pace from more aggressive increases in recent months as it set a 4.5% to 4.75% target for the federal funds rate. The S&P 500 closed up more than 1% Wednesday after the Fed news and climbed nearly 2% Thursday.
“I thought that his demeanor was really the key thing,” Gundlach said, noting that in a speech in Jackson Hole, Wyoming, last August about the central bank’s aim to wrestle inflation back to 2%, Powell “comes out like Apollo Creed predicting pain for the economy and lots of unpleasant outcomes as a consequence of the need to catch up on raising rates. And I didn’t hear the word ‘pain’ at all today.”