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Bond Guru Says if the Fed Met Today, It Wouldn’t Raise Rates

December 11, 2015, 10:08 PM UTC
Photograph by CNBC/NBCU Photo Bank via Getty Images

Bond fund guru Jeffrey Gundlach thinks there’s a growing chance that the Federal Reserve won’t raise rates next week.

“If they met today, they wouldn’t raise rates,” says Gundlach. “The economy is supposed to be good, but the markets are highly suspect.”

The U.S. Central bank has been widely expected to raise short-term rates on December 16 for the first time in nine years. But the top fund manager, who runs bond firm Doubleline Capital, said that this week’s market turmoil may force the Fed to pause.

On Friday, stocks plunged with the Dow Jones Industrial Average falling nearly 310 points. The market seems to be reacting to troubles in the high yield bond market. Junk bonds prices fell more than 2% on Friday, after a Third Avenue mutual fund that specialized in junk bonds said that it would stop investors from redeeming their money from the fund, and wind down. Low oil prices have battered energy companies, which make up a significant portion of the high-yield market. Worries about energy debts have spread to the rest of the junk bond market, and on Friday, to stocks as well.

Gundlach said that junk bond prices are as low as they were back in 2008 just a month after Lehman Brothers failed, and that the commodities market is trading like we are in a global recession. Gundlach said that if the Fed were to increase rates it could lead to more market turmoil.

“So many markets are participating it’s hard to just call it a market problem,” says Gundlach. “The main reason the Fed would raise rates is because it promised it would. Everything else suggests they should be cutting rates, not raising them.”

Gundlach said his firm was selling junk bonds from its portfolios as well on Friday. Despite the drop, he doesn’t see much upside in riskier debt right now.