The U.S. Federal Reserve (Fed) decided to raise interest rates by 2 yards (50 basis points) on Wednesday (14th) and hinted that there will be more interest rate hikes next year. The Fed may raise interest rates once more by 1 yard, but he believes that there should be no more interest rate hikes following the Fed’s decision-making meeting in December, and the US will have a 75% chance of falling into a recession.
After the Fed raised interest rates by 2 yards, the U.S. benchmark interest rate reached a range of 4.25-4.50%, a 15-year high. Central bank officials also predicted that the end-point interest rate may rise to 5.1% next year, and will not cut interest rates until at least 2024.
However, Gundlach, chief executive of DoubleLine Capital, said multiple recession indicators are evident and the economy is in a very advanced stage.
Regarding the inflation outlook, Gundlach questioned the idea that once inflation starts to decline, it will stop at 2%. To him, the idea that inflation would stay around that level following falling to 2% was “unbelievable.”
Gundlach pointed out that inflation may fall faster than most people expect. He believes that the bond market has fully priced in the reality that inflation has peaked and started to slide.
Observing the US bond market, the inversion of 10-year and 2-year yields has reached the most serious level since the 1980s, which is a harbinger of economic pain.
As for the S&P 500, Gundlach feels that everyone has priced in a target price of 4,250, but he believes that this target price is still too high given the current economic situation. The S&P 500 closed down 0.61% or 24.33 points on Wednesday to 3995.32 points.
