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January 31, 2024 at 08:32 PM
Financial markets shouldn’t expect a Federal Reserve interest rate cut in the next two or three months, DoubleLine Capital CEO Jeffrey Gundlach noted Wednesday after Fed Chairman Jerome Powell indicated the central bank is unlikely to start lowering rates in March, as many had expected.
The billionaire investor continues to expect a recession in 2024.
“When I hear the word ‘Goldilocks’ I get nervous,” Gundlach said on CNBC’s “Closing Bell,” describing investor hopes that the economy would enjoy a soft landing, with assets “priced for perfection,” after a period of high inflation and aggressive Federal Reserve interest rate hikes.
“Today, Jay Powell took Goldilocks away, I think,” Gundlach said.
“We knew that inflation was going to come down but for now, we think there’s going to be a stall in the inflation rate coming down. And that will probably mean that the market isn’t going to get the Goldilocks picture that it was euphoric about a couple of weeks ago,” he said.
Risk assets including stocks, junk bonds and bank loans “got to a very high level of enthusiasm” when the market expected interest rate cuts to come soon, Gundlach noted.
Powell’s statement that the Fed’s policy meeting in March isn’t the most likely time for cutting rates “was obviously the big one that tanks the stock market and got the bond market a little bit low, less enthusiastic,” he said. “The baseline here is the market can’t expect a rate cut in the next two or three months.”
