DoubleLine Capital CEO Jeffrey Gundlach said on Tuesday that the Federal Reserve needs to ease policy quickly amid the current economic slowdown and will cut interest rates by half a percentage point this week. Gundlach told CNBC’s Scott Wapner at the future-proofing conference: “The Fed is only looking at the two-year Treasury bond, and the two-year Treasury bond rate fell by 3.6%, so the Fed needs to cut interest rates by 150 basis points soon. “I Think they’ll start tomorrow at 50 basis points. “Markets are now pricing in a 60% chance of the Fed approving a 50 basis point rate cut at the end of Wednesday’s policy meeting, according to CME Group’s FedWatch tool. Just a week ago, a quarter-point rate cut was the consensus. Fed Funds , the central bank’s benchmark overnight lending rate, currently stands at 5.25% to 5.50%, but the scale of the Fed’s first rate cut in years has been a focus of debate on Wall Street. A rate cut could help boost corporate earnings growth after a period of high borrowing costs and stubborn inflation. On the other hand, a deeper rate cut than previously expected could raise concerns about the health of the economy, which has shown signs of falling. There are some signs of weakness. Gundlach said: “It is very likely that we will have a deflationary situation… when I look at oil prices… overall prices and the layoffs that are coming, that will probably lead to zero wage growth.” “So I think the Fed is way behind the curve and should get its act together. “Recent inflation data shows that price pressures have eased significantly since the sharp rise in 2021-22. A measure of consumer prices showed 12-month inflation at its lowest level since February 2021, while wholesale prices Indicators suggest that pipeline price increases are largely contained. “We are in a recession now,” said Gundlach, a prominent fixed-income investor whose firm has $96 billion in assets under management as of 2023. He said he stood by his view. The view is that the U.S. is in recession. “I said on July 31st… the history books will say that the U.S. is in recession in September 2024. I still believe that to be true,” Gundlach said. “We’re in a recession right now.” He has long warned investors not to ignore the inversion of the yield curve, in which two-year Treasury bonds yield higher than 10-year Treasury bonds. An inverted yield curve has been a reliable predictor of recession, and signs of a reversal could signal an impending recession. He believes that the recent lack of inversion in yields is highly suggestive of an economic recession.
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