Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Wednesday that Federal Reserve officials are no longer trying to prepare the markets for rate hikes because they are no longer certain they are going to raise them.
“The ‘rate hike cycle’ has left the building,” Gundlach said in a telephone interview after Wednesday’s decision by Fed policymakers to leave rates unchanged.
“They are not preparing the markets for a rate hike at all,” he said.
The Federal Reserve kept U.S. interest rates unchanged on Wednesday and signaled it still planned two hikes this year, although a slowing economic growth path for 2016 and 2017 prompted a downgrade in where the U.S. central bank thought rates would peak.
“What I think is that the Fed doesn’t believe their own ‘dot plot’ anymore,” said Gundlach, who oversees $100 billion at Los Angeles-based DoubleLine Capital. Federal Reserve officials publish their forecasts for the central bank’s key interest rate on a chart known as the dot plot.
Even steady Fed hawks backed away from pushing for a hike at Wednesday’s meeting, analysts noted. “It’s as dovish as the Fed can get without actually cutting rates. Even [Kansas City Fed President] Esther George withdrew her dissent. The path of rates is lower, which is a big dovish swing,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management.
Gundlach said he does not believe U.S. economic growth is strong enough to justify the two rate hikes the Fed is planning later this year. “I just don’t see it. They’ll be lucky if they can raise it once.”
Overall, Gundlach said following Fed Chair Janet Yellen’s news conference: “Yellen sounds like she doesn’t have confidence anymore. She is backing away from any forecast. She is simply saying, ‘I really don’t want to forecast anymore.’ We are done with this forecasting game. The subtext is that ‘we’ve been so wrong forecasting the data, we should stop’.”
The man known on Wall Street as the ‘Bond King’ is one of the first heavyweight investors to raise red flags publicly about the credibility of major central banks, including the U.S. Federal Reserve, as countries struggle to manage economic growth.
Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, he forecast U.S. Treasury yields would fall, not rise as many others had expected.