Inflation threat fades, Fed should stop raising rates

  • Billionaire investor Jeffrey Gundlach thinks the threat of inflation is rapidly receding.
  • He urged the Fed to stop raising rates after Wednesday’s decision because there has been progress on inflation.
  • The Fed is not being transparent about its inflation target, added Gundlach, which he said is “closer to 3% now.”

Billionaire investor Jeffrey Gundlach has urged the Federal Reserve to halt interest rate hikes, saying the inflationary threat is fading fast.

“I think there’s been some progress on inflation,” the DoubleLine Capital CEO said in a CNBC interview Wednesday. “Nobody really talks about all these meteoric price increases anymore. With the economy weakening, I think the inflation rate is going to come down faster than most economists,” he added.

Gundlach’s comments come after the Fed announced a 50 basis point interest rate hike on Wednesday as part of its continued efforts to calm inflation towards the official target of 2%, from 7.1% in November. The central bank raised its key rate by 425 basis points this year to 4.25%-4.5%, the highest level since 2007.

The Fed’s latest median projections suggest officials will hike rates to 5.125% by the end of 2023, dashing any investor hopes the institution will abandon aggressive policy amid growing recession risks. Gundlach pointed to an inverted yield curve in the bond market as a flashing sign of an impending economic downturn.

“I think they shouldn’t be hiking anymore after today,” Gundlach said.

In Gundlach’s view, the Fed is not being transparent about its inflation target, saying he doesn’t think the central bank really wants to lower it to 2%.

“I secretly believe the Fed’s inflation target is more like 3% now. If we go down to 2%, I don’t see how it’s going to end there. It would just be so much downside momentum […] that I just don’t know if they really want to go that far,” he said.

“They just don’t always articulate the move of the target because it makes them look weak, it makes them indecisive,” he continued.

He also said the Fed would be “strongly encouraged” by positive inflation data over the next six months, and predicted the pace of price increases would drop to 4.1% by next June.

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