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「New Bond King」 Gundlach: Fed Rate Cut This Year 'No Longer Possible'

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The core judgment is based on two key dimensions: persistent inflation data exceeding expectations, and a clear signal from the interest rate market.

Original Title: "New Bond King: Fed Rate Cut 'No Longer Possible' This Year"

Editor's Note: Jeffrey Gundlach, known as the "New Bond King," is renowned for his stellar performance in the bond market, especially in predicting interest rate cycles, Fed policies, and economic turning points. After the 2008 financial crisis, his firm DoubleLine Capital quickly grew in size, accurately forecasting market trends multiple times. He is considered the successor to the previous "Bond King" Bill Gross.

Jeffrey Gundlach, CEO of DoubleLine Capital, made it clear that the possibility of a Fed rate cut this year has largely vanished, as stubborn inflation and interest rate market signals have blocked the space for monetary easing.

On May 18, according to Bloomberg, during an interview with Fox News' "Sunday Morning Futures" program, Gundlach pointed out that the market previously expected two rate cuts this year, but inflation data has consistently not cooperated. He bluntly stated:

"With the 2-year Treasury yield 50 basis points higher than the federal funds rate, a rate cut is, in my opinion, simply not possible."

As mentioned in a previous article by The Wall Street Eye, the US April CPI surged by 3.8% year-on-year, marking the fastest pace since May 2023, and Gundlach warned that the next CPI data will "start with a 4."

Meanwhile, the Iran conflict has driven oil prices sharply higher, further transmitting to US inflation data, exacerbating the already challenging price pressures. Gundlach also issued warnings about market risks such as overvalued stock prices and private credit risks, indicating that overall market risks are quietly accumulating.

Stubborn Inflation, Rate Cut Window Closes

Gundlach's assessment that the Fed cannot cut rates this year is based on two key factors: persistently higher-than-expected inflation data and clear signals from the interest rate market.

The April CPI rose by 3.8% year-on-year, the highest increase in nearly two years, far exceeding the Fed's 2% policy target. Gundlach stated that DoubleLine's model shows that the next CPI data will "start with a 4," indicating that inflation pressure is not only not receding but is trending further upwards.

From an interest rate market perspective, the current two-year U.S. Treasury yield is about 50 basis points higher than the federal funds rate.

Gundlach believes that this yield curve structure itself poses a technical barrier to rate cuts—market pricing has already reflected expectations of sustained inflation, and if the Fed cuts rates at this point, it will face serious credibility risks.

The oil price shock brought about by the Iran conflict is another significant variable that cannot be ignored. An increase in energy prices will directly feed into all components of the CPI, adding new resistance to inflation easing. Gundlach expects this upward trend to continue to be reflected in inflation reports in the coming months.

Gundlach offered a direct assessment of the situation facing the new Fed Chair Warsh: he took over the position at a "difficult moment."

Warsh, upon taking office, is confronted with a complex situation where high inflation, an oil price shock, and market expectation divergences coexist. The Fed's policy space is under multiple constraints—it cannot ignore inflationary pressures and cut rates recklessly, yet it faces uncertainty about economic growth prospects.

Analysts point out that Gundlach's remarks imply that Warsh has almost no room to implement loose monetary policy in the short term.

Speculative Concerns Behind the Stock Market's Strength

Despite macroeconomic turbulence, the performance of the U.S. stock market remains "exceptionally strong." Gundlach offered his own interpretation: it is precisely because the Fed has stood still on the inflation issue that the stock market has been able to continue its upward trend.

"When the Fed does nothing about the inflation problem, the stock market will surge all the way," he said. Corporate earnings continue to exceed expectations, further fueling speculative sentiment in the market.

However, Gundlach also pointed out that the current stock market has internalized a considerable level of risk. "Market valuations are very expensive, and speculative sentiment is strong," he said, indicating that although earnings data consistently outperform expectations, this situation itself is "fostering speculative fervor."

On the asset allocation front, Gundlach stated that he has been "very, very bullish on commodities for about the past 3 years." He noted that bond yields are negative, predicting that a portion of the market has diverted interest from more speculative assets like Bitcoin, making it almost impossible for investors to find attractive alternative options outside of stocks.

In the interview, Gundlach once again issued a warning about the private lending market, speaking bluntly. When asked if he was concerned about this sector, he replied, "Of course, I am definitely concerned."

He pointed out that the private credit market has a troubling structural feature: "This market always seems to require new investors to enter." He believes that this may reflect the sponsor's greed logic - "they just want to manage more and more assets."