(Bloomberg) — DoubleLine Capital’s Jeffrey Gundlach joined the growing ranks of those wagering that the Federal Reserve will kick off its interest-rate cutting cycle with a half-percentage-point move on Wednesday.
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Speculation that the central bank is poised to start pulling rates down swiftly to keep the economy from stalling has fueled a sharp bond-market rally that’s driven the yield on two-year Treasuries to less than 3.6%. That’s roughly 1.75 percentage points below the Fed’s target rate.
Gundlach, a long-time bond-fund manager, said the central bank should close that gap. He is betting that the Fed is likely to reduce its benchmark by 50 basis points on Wednesday and lower it by a total of 125 basis points by the end of the year. He said he thinks the US economy is already in a recession and the Fed has kept policy tight for too long.
“I think they’re going to cut 50 — they seem so out of line,” Gundlach said as part of a panel at the Future Proof conference for the wealth management industry in Huntington Beach, California. “The Fed is way behind the curve and they should get their act together.”
Traders are split on the scale of Wednesday’s expected move. Swaps prices suggest they see roughly a 55% chance of a half-point move after retail-sales data released Tuesday showed an unexpectedly rise in August. Weaker data including the August jobs report showed US hiring slowed markedly while the unemployment rate rose to 4.3%, the highest in nearly three years.
He said he gives the Fed a letter grade of F, adding that they should have cut rates sooner.
“We are in a recession already,” Gundlach said. “I see an awful lot of layoffs announcements.”
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