DoubleLine Capital CEO Jeffrey Gundlach has delivered a stark warning to investors, indicating that new Federal Reserve Chairman Kevin Warsh is adopting a far more hawkish stance than anticipated. Gundlach suggests that Warsh's firm commitment to re-establishing price stability will likely curb any hopes for an era of 'easy money' and aggressive rate cuts.
Speaking on CNBC's "Closing Bell," Gundlach emphasized, "He is absolutely telling you that he plans on delivering on price stability. So that means... we're not going to have such easy money policy as everybody thought maybe Chairman Warsh would do back in the first quarter of this year, when everyone was counting on rate cuts." Gundlach noted a distinct shift in tone, adding, "He doesn't sound like that today at all."
VIDEO: Jeffrey Gundlach discusses Kevin Warsh's potential chairmanship on CNBC's Closing Bell (2:03)
This assessment follows the Fed's latest policy statement, which unequivocally declared, "the Committee will deliver price stability" – a sentiment Warsh echoed repeatedly in his press conference. The new chairman stressed the Fed's unwavering resolve to bring inflation back to its 2% target, a level unseen for half a decade, which he characterized as a failing that needed urgent correction. "The commitment to deliver is strong, unanimous, and unambiguous, and that's I think an important message we've missed for five years, and we're going to fix that," Warsh asserted.
The forceful rhetoric on inflation proved stiffer than many investors and economists had hoped for from President Donald Trump's chosen nominee, especially given the previous chair, Jerome Powell, frequently faced criticism from Trump for maintaining higher rates.
Adding to the cautious outlook, Warsh opted out of submitting an individual interest-rate projection in the central bank's closely scrutinized 'dot plot' and hinted at a comprehensive overhaul of the Fed's communication strategies.
Gundlach interprets Warsh's strong emphasis on price stability as a significant reduction in the risk of the Fed pursuing excessively accommodative policies that could reignite inflationary pressures. According to the billionaire bond investor, this strengthens the investment case for long-term U.S. Treasuries.
"I think there's a greater reason to own long-term Treasuries today now that the new sheriff is in town," Gundlach declared. He further elaborated that Warsh has effectively staked his professional credibility on achieving inflation control, making any aggressive rate cuts highly improbable. "If you're going to get price stability, and if he doesn't deliver on something that can be characterized as price stability, he's basically announced today that he would be considered a failure."
Gundlach concluded, "So he's got to get that inflation rate down. We don't have to worry about the over-easing or overly accommodative rates that would put further pressure on the long bond."
