New Bond King Gundlach: The Federal Reserve Faces the Most Predictable Interest Rate "No Change" in Years
Gundlach stated that the Federal Reserve's upcoming interest rate decision is the most predictable "no change" in recent years. Although the market widely expects the Federal Reserve to keep interest rates unchanged at Wednesday's meeting, traders are increasing their bullish bets on U.S. Treasuries. Powell's press conference will focus on the dual mandate of price stability and full employment. Swap pricing shows that the likelihood of a rate cut in March is about 30%. Against the backdrop of a sharp decline in tech stocks, risk aversion has driven the two-year U.S. Treasury yield down to its lowest level in over a month
According to the Zhitong Finance APP, Jeffrey Gundlach, the founder of DoubleLine Capital, known as the "new bond king," stated that the Federal Reserve's upcoming interest rate decision is the most predictable "unchanged" in recent years.
Although the market generally expects the Federal Reserve to maintain interest rates at Wednesday's meeting, traders have increased their bullish bets on U.S. Treasuries and hope that Fed Chairman Jerome Powell will signal a possible rate cut at the March meeting.
Gundlach indicated that Powell's press conference should focus on the dual mandate of price stability and full employment, "because there is currently tension between the two."
Swap pricing shows that U.S. policymakers have about a 30% chance of lowering the benchmark rate in March—despite the overwhelming expectation that the Fed will keep rates unchanged this week. With inflation remaining high, attention will be on Powell's press conference this afternoon and any clues regarding the outlook for the next meeting in a few months.
Traders have high hopes for Powell's remarks. This week, expectations for further easing of policy began to rise against the backdrop of a sharp decline in tech stocks. Risk aversion pushed the two-year U.S. Treasury yield to its lowest level in over a month, triggering a wave of bets on rising U.S. Treasuries. A recent client survey released by JP Morgan on Tuesday showed that net bullish positions in U.S. government debt reached a nearly 15-year high.
With December's inflation data being relatively weak and Fed Governor Christopher Waller indicating this month that a rate cut could occur before mid-year, it makes sense to hedge against a possible rate cut in March. Of course, the biggest question remains President Donald Trump's tariff plans and their impact on the economy.
Citigroup interest rate strategist Edward Acton stated in a report that given the lack of clarity on tax issues, "this may cause Powell to hesitate when considering the possibility of a rate cut in March," despite the labor market appearing stable