New bond king: In favor of a 50-basis-point rate cut, the Fed is already "behind the curve"
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New bond king: In favor of a 50-basis-point rate cut, the Fed is already "behind the curve"
The new "bond king" says the U.S. economy has already entered a recession, and the Federal Reserve has maintained a tight monetary policy for too long, leaving it "far behind the curve." He urges swift action and is betting on a 50-basis-point rate cut.
Navigating Web3 tides with focused insightsBy Huang Wenwen, Wall Street Insights
The September rate decision is about to be served, amid rising market clamor. Traders remain divided over whether the Fed will cut rates by 25 or 50 basis points at this meeting.
Jeffrey Gundlach, founder of DoubleLine Capital and known as the "New Bond King," has now joined the debate on the pace of rate cuts, betting that the Federal Reserve will kick off its easing cycle with a 50-basis-point cut at Wednesday's meeting.
Markets speculate the Fed is preparing to swiftly lower the benchmark rate to prevent economic stagnation. This expectation has driven bond markets, with U.S. two-year Treasury yields falling below 3.6%, roughly 1.75 percentage points below the Fed’s target rate.
As of now, the yield on the U.S. two-year Treasury stands at 3.596%.
Gundlach believes the Fed should narrow this gap. He expects the central bank will likely cut rates by 50 basis points this time and deliver a total of 125 basis points in cuts by year-end.
Speaking Tuesday at the Future Proof conference in California, Gundlach said the U.S. economy has already entered a recession and the Fed maintained restrictive policy for far too long:
"I think they’ll cut by 50 basis points. The Fed is 'way behind the curve,' and they need to act quickly."
Traders currently assign about a 55% probability to a 50-basis-point cut. Data released Tuesday showed U.S. retail sales rose unexpectedly in August, while employment figures indicated weakness—hiring slowed notably, and the unemployment rate climbed to 4.3%, the highest in nearly three years.
Gundlach gave the Fed an “F” grade, adding, “They should have cut earlier… I’m seeing lots of layoff announcements. The U.S. has already slipped into a recession.”
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