Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said new Federal Reserve Chairman Kevin Warsh has struck a more hawkish tone than many investors expected, emphasizing his commitment to restoring price stability and suggesting less appetite for accommodative monetary policy.
“He’s absolutely said he’s going to achieve price stability, which means … we’re not going to have the easy monetary policy that we all thought Chairman Warsh was going to do in the first quarter of this year, when everyone was expecting rate cuts,” Gundlach said on CNBC’s “Closing Bell.” “He doesn’t look like that at all today.”
The comments came after the Fed’s policy statement declared, “The Committee will achieve price stability,” a theme repeated by Mr. Warsh in his press conference. He lamented this fact, repeatedly saying the Fed is committed to getting inflation back to 2%, a level not seen in five years.
“The commitment to deliver is strong, unanimous and clear. I think this is an important message that we’ve missed for five years. We’re going to fix it,” Warsh said.
It may have been a tougher tone on inflation than investors and economists expected from President Donald Trump’s handpicked candidates for the position. Former Chairman Jerome Powell came under fire from President Trump for raising interest rates too high.
Warsh also declined to provide individual interest rate forecasts on the central bank’s closely watched dot plot and suggested a broader review of the Fed’s communications framework.
Mr. Gundlach said Mr. Warsh’s emphasis on price stability reduces the risk that the Fed will pursue overly accommodative policy that could reignite inflation. This strengthens the case for holding long-term U.S. Treasuries, he said.
“Now that we have a new sheriff in town, I think there’s a great reason to hold long-term bonds,” Gundlach said. “If he’s aiming for price stability, and he doesn’t achieve something that could be characterized as price stability, he’s basically announced today that he’s going to be considered a failure.”
The billionaire bond investor said Mr. Warsh had effectively staked his faith in curbing inflation, making aggressive rate cuts less likely.
“So he has to bring down the inflation rate,” Gundlach said. “We don’t need to worry about over-easing or overly accommodative interest rates, which could put further pressure on long-term bonds.”
