Jeffrey Gundlach, Deputy Chief Investment Officer (CIO) of Doubleline and the "New Bond King" Jeffrey Sherman, stated that Wall Street's expectations of the Federal Reserve cutting interest rates as early as March are too optimistic.
"At this stage, we see that core inflation has been suppressing, and the trajectory is correct, but the market will definitely infer that the Federal Reserve will normalize policy and return to a lower interest rate," he said in an interview. "Today, it seems optimistic that this will happen soon, as early as March."
US treasury bond bond yields rose across the board on Thursday, as traders reduced their bets on interest rate cuts in March, and the labor market remained flexible. The minutes of the Federal Reserve's December meeting showed that interest rates may remain at a limited level for a period of time. The probability of a rate cut in March has decreased from 70% a day ago to about 64%, and traders previously expected March to be the earliest "starting point" of this round of easing.
The latest minutes of the Federal Reserve meeting released this week show that when discussing policy prospects, participants believe that the current policy interest rate may reach or approach the peak of this tightening cycle, but the actual policy path still depends on the direction of the economy.
Nick Timiraus, a well-known macro journalist and known as the "Federal Reserve's mouthpiece," commented that the meeting minutes did not present a meaningful discussion on the important issue of when to cut interest rates.
Richmond Fed Chairman Thomas Barkin also said he is confident that the US economy is on the path of a soft landing, but some obstacles still exist, so there is still a possibility of further interest rate hikes.
Sherman also believes that the US economy has not yet emerged from the danger of recession, especially if inflation returns or if the Federal Reserve continues to maintain interest rates at higher levels for a longer period of time. He pointed out that the yield curve of US treasury bond bonds is still upside down, which usually indicates economic recession.
"Looking ahead to this year, the risk of economic recession still exists. I believe that ultimately, it will depend on how the job market develops," he added.
Sherman also pointed out the so-called "greedy" credit market, where investors chase returns in corners with limited supply and take advantage of the overall upward trend in corporate borrower issuance.
"This is where we teach patience and perseverance," he said. "Don't pursue those 'greedy' fields, make sure you have a positioning."