Gundlach Warns U.S. Inflation May Hit 10%, Forcing Fed’s Hand

(Bloomberg) — U.S. inflation may approach 10% this year, according to DoubleLine Capital’s Jeffrey Gundlach, a historic level that he said underscores the need for the Federal Reserve to aggressively tighten monetary policy even amid fresh uncertainty caused by Russia’s war in Ukraine.

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“Their job is to fight inflation,” the billionaire money manager said of the Fed during a web presentation Tuesday. “They’ve done a terrible job of it so far.”

Gundlach, 62, said he expects the central bank to raise interest rates by a quarter of a point at its March meeting, and sees the consumer price index rising to at least 9% before reaching a peak. Inflation may end the year as high as 7.5%, Gundlach said, with surging prices leading to “demand destruction” as food and energy soak up more of household budgets.

The economic outlook is “substantially worse” now than it was in September, he added. Gundlach reiterated his long-term bearish position on the U.S. dollar and cited an “insanely high” budget deficit, while recommending investors sell U.S. equities and buy emerging-market stocks.

“We’re definitely getting more concerned” about the possibility of recession, he said.

Other takeaways from Gundlach’s remarks:

  • Emerging markets have become a real “debacle” as some mark Russia down to zero. He said, however, that emerging markets are “very cheap”

  • Bonds look “incredibly over-valued”

  • The dollar will eventually buckle due to the trade and budget deficits. It may be accompanied by a U.S. recession and that will be the end of U.S. stocks outperforming.

  • The commodity cycle has “turned with a vengeance.” Commodities broadly are a better investment than gold, he says. While he has no issue with owning gold for the long-term investor, it’s just not a short-term bet

  • The labor-force participation rate is below the pre-pandemic level. That’s in part due to consumers having received stimulus payments

  • One of the reasons housing is doing well is that wage growth is higher than the 30-year fixed-rate mortgage

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