DoubleLine News & Analysis

Fed Rate Pause and Gundlach's Call for December Hike with 4% CPI Outlook

Jeff Gundlach, founder of DoubleLine, expressed confusion over the Federal Reserve's decision to hold interest rates steady after its October meeting. He referenced Fed Chairman Kevin Warsh's comments about a strong economy and said the headline Consumer Price Index (CPI) is headed towards 4%, with commodities in a bull market. Gundlach criticized the Fed for being "behind the curve," noting that the current overnight rate of 3.75%-4% is below the 2-year Treasury yield of 4.7%, suggesting more rate hikes are needed. Despite the Fed's pause, CME's FedWatch tool shows an 85% probability of a 25 basis point (0.25%) rate hike in December. Gundlach supports a December increase unless oil prices decline significantly; U.S. oil prices remained above $100 per barrel. He maintains an investment portfolio allocation of 30% equities, 30% bonds, 20% commodities, and 20% cash, favoring an equal-weight S&P 500 approach. Fed Chairman Warsh also announced adjustments in future meeting plans, stating that one meeting in 2027 and two in 2028 will focus solely on policy strategy without rate votes. Gundlach endorsed reducing the total number of rate-setting meetings to six, arguing it allows more time for data to accumulate. This commentary highlights ongoing market expectations for Fed policy and inflation outlook, factors directly influencing interest rates and investment decisions.