DoubleLine Capital founder Jeff Gundlach criticized the Federal Reserve’s decision to hold interest rates steady at its October meeting, arguing that policymakers are behind the curve and should be hiking rates more aggressively. Speaking on CNBC’s "Closing Bell," Gundlach questioned the central bank's reluctance to move, citing a strong macroeconomic environment highlighted by Fed Chairman Kevin Warsh. He pointed to rising commodity prices and an expected increase in headline CPI toward 4% as evidence that further tightening is necessary.
Gundlach noted that the current federal funds rate of 3.75%-4% remains significantly below the yield on the 2-year Treasury note, which trades around 4.7%. This spread, he argued, indicates that the Fed needs to raise rates beyond its previous gradual increases. Following the September hike of 25 basis points, Gundlach had already suggested the Fed should have moved by 50 basis points instead. He stated that absent a drop in oil prices, a December hike appears likely, with market tools showing an 85% probability of a 25-basis-point increase at the next meeting.
In addition to monetary policy, Gundlach commented on the Fed’s structural changes announced by Warsh, including plans to dedicate certain meetings in 2027 and 2028 to policy strategy rather than rate votes. Gundlach expressed support for reducing the number of rate-setting meetings from eight to six annually, arguing that fewer meetings allow for better data filtering. Meanwhile, his investment portfolio allocation remains unchanged, with 30% in equities favoring the equal-weight S&P 500, 30% in bonds, 20% in commodities, and 20% in cash.
Gundlach’s critique underscores a growing tension between market expectations of persistent inflationary pressures and the Federal Reserve’s cautious approach to normalization. By highlighting the inverted relationship between the fed funds rate and short-term Treasury yields, he frames the current pause not as a stabilization measure but as a potential policy error that risks anchoring higher inflation expectations. The emphasis on commodity-driven CPI growth suggests that traditional disinflationary trends may be reversing, forcing investors to reconsider the duration of high-rate environments.
The discussion around reducing the frequency of rate-setting meetings reflects a broader institutional shift toward strategic flexibility over rigid scheduling. If adopted, this change could alter how markets digest policy signals, potentially increasing volatility during non-voting periods while allowing for more deliberate adjustments when action is taken. Investors must now weigh the likelihood of accelerated hikes against the possibility of a more measured, data-dependent pace that accommodates structural economic shifts.
