Fighting the Fed: Gundlach Predicts No Interest Rate Hike This Year

Jul 15 2015 | 4:57pm ET

Bond guru Jeff Gundlach has reiterated his view that the Federal Reserve will not begin policy normalization this year, despite testimony the same day from Fed Chair Janet Yellen before Congress stating such a move was likely.

Gundlach, who is founder and CIO of DoubleLine Capital, said at an industry conference in New York that if the Fed increases interest rates prematurely, it will be faced with the prospect of having to cut them again. 

“I can see why they want to get off of zero, but the economy just hasn’t really been able to corroborate,” Gundlach said at the event. He noted last week that the first hike may not occur until 2016, due to the debt crises in Greece and Puerto Rico and the volatility in China. 

At the same time, Janet Yellen’s testimony before the U.S. Congress said that the U.S. central bank remains poised for a rate hike, with labor markets expected to steadily improve and the turmoil overseas unlikely to impact the U.S. economy significantly enough to push the U.S. economy off track. 

Gundlach pointed out that investors often hear something different than Yellen and other Fed officials actually say. "When Yellen says she will raise rates if economic growth improves, people hear 'she will raise rates'. But that's not what she said," Gundlach noted. Investors tend to forget that interest rates have been essentially rising for the past three years, albeit benignly. 

Earlier this month, Gundlach handicapped the chances of a Fed hike in September at 25%, on the low end of institutional expectations. 

Gundlach’s comments included that opinion that while they were potentially a good investment in 2015, high-yield bonds could become a debacle in three to four years. “I’m willing to dance the risk dance near the door” this year, Gundlach said.

He also said he was bullish on emerging market bonds and Indian stocks, which he expects will do well over the next few few decades on strong demographics. “I’m really a ten on a scale of one-to-ten bullish on Indian equities for the next generation,” he said.

Gundlach started Los Angeles-based DoubleLine in 2009 after he was ousted as chief investment officer of TCW Group. The firm’s flagship $46 billion Doubleline Total Return Bond Fund reported its 17th consecutive month of capital inflows in June.

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