Gundlach on the Fed
“Bond King” and DoubleLine CEO Jeffrey Gundlach has been quite vocal about the Fed’s alleged mistake of raising rates when economic conditions do not appear to warrant the increase. Gundlach has stated that balance sheet unwinding has been adding to equities’ sell-off (DIA) and that there’s a high correlation between central bank balance sheets and global equity markets. According to Reuters, he cited an Atlanta Fed study estimating that $600 billion of Fed balance sheet unwinding is equivalent to three interest rate hikes.
Massive change in stance
During an interview with Yahoo Finance, Gundlach concurred that the Fed has changed its stance significantly since December’s rate hike. At the beginning of January, Fed chair Jerome Powell said the Fed could be more patient in raising rates. He and other Fed officials have reiterated this stance several times since.
Quantitative easing or tightening
Gundlach thinks that by being “patient,” the Fed means it will not make changes before communicating them to the market. He also said that the Fed might be considering quantitative easing, a significant change from December when Powell said that “quantitative tightening was on autopilot.”
There seems to be a lot of confusion over whether the Fed could go for quantitative easing or tightening, and Gundlach thinks the Fed might have lost its direction. However, he thinks this loss of direction “isn’t necessarily bad.”
Meanwhile, markets (SPY) have been strong this year, in part due to the Fed’s dovish stance. NVIDIA (NVDA), Advanced Micro Devices (AMD), Micron (MU), General Electric (GE), and Microsoft (MSFT) had gained 19.2%, 32.0, 34.2%, 34.3%, and 9.3%, respectively, as of February 23.