Gundlach Says Fed Is Guessing That Inflation Will Be Transitory

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It is not clear that U.S. inflation will be “transitory” as the Federal Reserve economists are trying to convey, according to Jeffrey Gundlach.

“I’m not sure why they think they know that it’s transitory,“ Gundlach of DoubleLine Capital LP said in an interview with BNN Bloomberg Tuesday. “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively.”

Gundlach Says Fed Is Guessing That Inflation Will Be Transitory

While the Fed does have a point in saying the year-over-year increase -- which Gundlach says could be as high as 4% -- is higher in part because of the low, pandemic-induced numbers from 2020, the central bank may also be underestimating the impact of its wide-open monetary policies.

“There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“

Gundlach is chief executive and chief investment officer of Los Angeles-based DoubleLine Capital, which managed more than $136 billion as of Dec. 31.

While bond yields remain very low, it’s hard to figure out who’s going to buy the massive bond market issuance, he said.

“Who’s going to buy all these many trillions of dollars of bonds? Foreigners have been selling for years and they’ve accelerated their selling in the last several quarters, domestic buyers are not exactly selling, but they’re not adding to their holdings. So what’s left to absorb all of the spawn supply is the Federal Reserve.“

Equity Markets

The United States stock market is very overvalued by virtually every important metric versus foreign markets such as Asia and even Europe, he said.

“I bought European equities a couple of weeks ago, literally for the first time in many years. I can’t remember the last time I did it. And that’s largely because I think the U.S. dollar is almost certain to decline over the intermediate to long term.”

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