The Tell: DoubleLine Capital’s Gundlach sees Fed raising rates by more than the market expects

Matt Winkelmeyer/Getty ImagesBond king Jeffrey Gundlach, chief executive of DoubleLine Capital, said the Federal Reserve is “obviously” behind the curve on raising interest rates to combat higher inflation and that he expects the central bank to hike by more than markets expect. “How many months has it been that CPI has printed above expectations?” he said in a televised interview with CNBC on Friday, referring to the consumer-price index report. “We’ve been hawkish” relative to other firms, “but not nearly hawkish enough.” Gundlach, known by some as a bond fund “rock star” for his insights into the subprime mortgage market ahead of the 2007-2008 financial crisis, spoke on Friday amid a barrage of hawkish speculation among Wall Street economists. January’s hotter-than-expected CPI report has some Fed watchers talking about an emergency rate hike before the Fed’s March meeting. Meanwhile, fed funds futures traders were pricing in a 66% chance of a half-point increase in March, as of Friday, and a more than 50% likelihood that the policy rate target gets at or above 1.75% to 2% by year-end, from a current level of 0% to 0.25%, according to the CME FedWatch Tool.Read:A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading“Interest rates are going higher and every risk asset has to reprice based on these higher interest rates,” Gundlach said, adding that he nonetheless expects equities to remain stable in the near term. DoubleLine sees CPI staying elevated at 5% for 2022, according to Gundlach. Moreover, he says the 10-year Treasury yield BX:TMUBMUSD10Y will “probably” make a move toward 2.5% or even 3% this year. However, the Treasury yield curve will continue to flatten further and the “probability of weaker economic activity later this year is pretty high,” Gundlach said.“The Fed is obviously behind the curve … It’s going to have to raise rates more than the market still thinks,” Gundlach said on CNBC’s “Halftime Report.” “My suspicion is they are going to keep raising rates until something breaks, which always happens.”Treasury yields turned mixed in Friday afternoon trading, with the 10-year rate hovering around 2%, while all three major stock indexes DJIASPXCOMP headed lower.

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