Jeffrey Gundlach thoughts on the final Fed meeting of December 2023, were put forward in his latest interview.
“It was pretty dovish, and the word of the day is any,” said Jeffrey Gundlach. “The market liked the Fed’s dovish tone because it respects that the curve is inverted and the economy is slowing down,” he added.
He thinks the Fed inserted the word “any” because he believes the Fed’s hiking cycle has been completed.
“Fed has been on hold for four of the last five meetings, and it is a trend,” he said. Jeffrey Gundlach noted bonds as having a November to remember, up over 4,5%, which has not happened since the 80s. Treasury bonds emerged from its worst bear market in history in the final quarter of 2023.
“The market liked the Fed’s dovish tone because it respects that the curve is inverted and the economy is slowing down”
JEFFREY GUNDLACH
Jeffrey Gundlach thoughts on the final Fed meeting are several rate cuts in 2024
“If I hear him right, Powell wants to cut rates before we get to 2%. He is respecting the momentum inflation can have,” said Jeffrey Gundlach.
His models indicate headline CPI falling to 2.4% in June, based on Shelter costs coming down 400 basis points.
If that is the case, the bond rally in treasuries has legs going into Q1, 2024.
The Fed’s Dotplot has pencilled 80 basis points of cuts in 2024.
But Jeffrey Gundlach believes the Fed has set the bar low, and rate cuts could surprise with more cuts.
“If they cut rates that much, they will have to cut more than that,” he said, and he believes the yield curve will start de-investing in Q1, 2024.
“If I hear him right, Powell wants to cut rates before we get to 2%. He is respecting the momentum inflation can have”
JEFFREY GUNDLACH
“I think we are still going to have a bond market rally.
I would guess 10-year Treasury yields in the low 3% sometime next year, which would be consistent if the Fed cust 200 basis points,” he said.
He sees a recession in 2024. “The good part of the Fed pivot, relaxation of financial conditions, which is starting to show in the recovery of financial markets,” he said.
“The discussion of when it will be appropriate to begin dialling back policy restraint begins to come into view and is a discussion for us at our meeting today” – Fed Chair Powell, December
Jeffrey Gundlach thoughts on the final Fed meeting where he sees cash on the sidelines going
“If you break below 4% yield in the 10 Year, it is almost like a fire alarm for the economy. You could start to see the correlation between stock bonds and equities breaking down,” he said.
He thinks the cash mountain is more likely to go into low-risk Treasury bills than the Magnificent 7 with high PE ratios.
“The discussion of when it will be appropriate to begin dialling back policy restraint begins to come into view and is a discussion for us at our meeting today,” Fed Chair Powell said in December.
So that, put to bed the higher for longer, narrative.
We enter 2024 with a relaxation of financial conditions, which could mark the beginning of a new cyclical bull market in stocks.
The wildcard is geopolitics. If the Doomsday Clock hits midnight, all bets are off.
