Jeffrey Gundlach, CEO of DoubleLine Capital, has called for a 50 basis point interest rate hike by the Federal Reserve at the upcoming October meeting. He argues that current economic data, specifically inflation trends reminiscent of the 1970s, necessitates a shift in policy.
During his September 8 webcast, Gundlach noted that a 0.5% increase would raise the effective federal funds rate from the current 3.63%–3.75% range toward 4.25%. He highlighted that import and export price growth is near 7%, while oil prices remain at or above $100 per barrel.
Futures markets currently price in a 64% probability of a rate increase for the FOMC meeting scheduled for October 27–28. Gundlach warned that failure to act could lead to a sharp spike in long-term Treasury yields, which are already near 4.80% for 10-year notes and above 5.25% for 30-year bonds.
The investor advises shifting equity portfolios toward equal-weighted strategies to mitigate concentration risks in mega-cap stocks. He maintains a bearish outlook on the US dollar, which supports his positive view on emerging markets.
A potential rate hike would likely cause immediate mark-to-market losses for fixed-income portfolios and increase refinancing costs for corporate borrowers. Gundlach emphasized that sectors sensitive to interest rates, such as housing and utilities, are already experiencing significant pressure.
