After the Federal Reserve decided to maintain its benchmark interest rate target range for the fourth consecutive meeting, and Federal Reserve Chairman Powell directly shattered hopes of a March rate cut, the US stock market experienced its largest single day decline of the year.
Jeffrey Gundlach, known as the "new debt king," said after the Federal Reserve's decision that Powell shattered market confidence in the "blonde girl," and the outlook for the US economy seems to be even more severe. There is still a possibility of recession in 2024, and unemployment rates will rise.
The blonde girl was taken away
On Wednesday Eastern Time, after the release of the Federal Reserve's interest rate decision, Federal Reserve Chairman Powell bluntly stated at a press conference:
"I don't think the committee can gain enough confidence when it meets in March to confirm that interest rate cuts will start in March, or something like starting a cycle of interest rate cuts."
Regarding this, Gunlak commented, "Today, Powell took away the blonde girl."
He believes that Powell's speech shattered the "blonde girl" theory and also shattered the market's previously blindly optimistic confidence.
Gunlak said, "We know inflation will decrease... For now, we believe that the decline in inflation rates will come to a halt. This means the market will no longer be as optimistic as it was a few weeks ago."
Gunlak also criticized the Federal Reserve's strategy of maintaining higher interest rates for a longer period of time, believing that this poses a negative risk to future economic growth.
He said, "The longer the Federal Reserve maintains the federal funds real interest rate at around 200 or 300 basis points, the more risky economic growth will become as we approach the end of the year."
Gunlak suggests that investors hold cash to provide funds for buying opportunities during economic downturns.
The New York Community Bank Thunderstorm is just an isolated case
Gunlak also talked about the "Thunderstorm" at the New York Community Bank in an interview.
On Wednesday Eastern Time, Community Bank of New York released a shocking financial report for Wall Street, causing the company's stock price to plummet by over 40% at the beginning of trading.
The financial report shows that New York Community Bank reported a loss of $252 million in the fourth quarter of last year, far below analysts' expected profit of $206 million.
The unexpected losses of New York Community Bank are related to the acquisition of the "signature bank" that was hit hard last year: in 2023, New York Community Bank took over $25 billion in deposits and nearly $13 billion in loans from the Federal Deposit Insurance Corporation.
As the asset level of New York Community Bank crosses the threshold of billions of dollars, the bank needs to reserve more capital and loss provisions. The company reported a loan loss provision of $552 million for the previous quarter, which was 10 times higher than the previous analyst's expectations.
Gunlak said that rising interest rates continue to pose a significant threat to the banking system, but he believes that the New York Community Bank Thunderstorm is just an isolated case and is unlikely to continue to spread to other banks.
Nevertheless, he added that there are still numerous events and evidence expected in the future to convince people that the US urban and commercial real estate market is in a state of "collapse".