Investment guru Jeffrey Gundlach says that he believes the Federal Reserve panicked in cutting interest rates earlier this week.
The bond king thinks the central bank is likely to cut its benchmark interest rate another 50 basis points when it meets this month to try to cushion the U.S. economy from the widening impact of the coronavirus
“I’m in the camp that the Fed is going to cut rates again,” perhaps even in two weeks” during its regularly scheduled meeting, Gundlach told CNBC.
“If we look at history, once the Fed does a panic, inter-meeting rate cut, particularly when it’s 50 basis points ... they typically cut pretty quickly again,” the DoubleLine CEO said.
“I think they cut 50 in the next meeting in just two weeks,” Gundlach said
Fears of the coronavirus spreading across the U.S. and disrupting the broader economy have hit markets hard. The S&P 500 Index has dropped 9% in the past 10 days, companies have issued financial and sales warnings, and 10-year Treasury yields hit record lows, Bloomberg explained.
The sudden swing in sentiment after months of bullish performance has left policy makers scrambling -- including the Fed’s emergency rate cut earlier this week -- and investors wondering if they’re seeing a repeat of 2008’s meltdown.
“When I say panicked, it doesn’t mean it’s not justified. Sometimes panic is justified,” the bond king said.
The benchmark 10-year Treasury note yield hit an all-time low under 0.9% just after the longtime bond investor made his comments around 12:40 p.m. Eastern, CNBC reported.
“We will see short rates headed toward zero,” Gundlach added.
“Business activity is likely to contract,” he said. “I received multiple emails today of clients that were planning on visits to DoubleLine saying they’re canceling them.”
Gundlach also said in the interview:
- The Fed’s benchmark rate is likely to go to zero
- The central bank will probably resume asset purchases or quantitative easing rather than going negative on interest rates
- Gold is the best thing to own now and is headed to new highs
- Financial and transport sectors are “falling knives” that should be avoided
- Joe Biden may win the Democratic nomination, but he cannot beat President Donald Trump. “I think Joe Biden is completely unelectable,” the DoubleLine CEO said.
For his part, St. Louis Federal Reserve President James Bullard said teh central bank won't have much additional information in hand at its March 17-18 meeting to justify another interest rate cut beyond the 0.5 percentage point emergency reduction approved this week.
The Fed on Tuesday, in its first rate cut outside of a regularly scheduled policy meeting since the height of the financial crisis in 2008, acted to shield the U.S. economy from the impact of the fast-spreading coronavirus outbreak.
"I don't want to prejudge what will happen at the March meeting," Bullard said on Wednesday, speaking before an academic lecture sponsored by the St. Louis Fed. "But we are not going to have a lot of information that is new."
In deciding on the appropriate size of the emergency cut this week, Bullard said, "We made the best judgment we could," adding that he felt the Fed was now "positioned for a fairly large outbreak...across a large swath of the population."
"I would expect to see a lot of cases," Bullard said. But for the Fed to move again, "I think that what you would have to see is that even that surprises to the upside and makes the situation more dangerous than it already is."
Investors expect the Fed to cut rates perhaps two more times this year on the outlook that the coronavirus outbreak may prove more persistent and have a deeper economic impact than currently estimated, Reuters reported.
This report uses material from the AP, Bloomberg and Reuters.
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