Jeffrey Gundlach says Fed’s Warsh is not going to be the ‘easy money’ chairman many hoped for

AI Market Analysis

Jeffrey Gundlach’s remarks suggest that the new Fed chair, Kevin Warsh, will maintain a hawkish stance, prioritising price stability over the easy‑money expectations that many investors had. This could keep short‑term rates higher for longer, pressuring risk assets such as equities and high‑yield credit, while boosting demand for long‑duration U.S. Treasuries as investors seek safe‑haven yields. The market may see a modest rotation from growth‑oriented sectors toward defensive assets, and the U.S. dollar could appreciate modestly against risk‑off currencies if the Fed’s tighter bias persists.

In the bond market, long‑term Treasury prices may rise on the back of increased buying, potentially lowering yields, while the yield curve could flatten if short‑term rates stay elevated. Commodity prices, especially gold, might benefit from the safe‑haven flow, whereas rate‑sensitive sectors like real estate and utilities could face headwinds. Overall, the outlook points to a cautious environment with a tilt toward safety.

Original Article

Jeffrey Gundlach says Fed’s Warsh is not going to be the ‘easy money’ chairman many hoped for

DoubleLine Capital CEO Jeffrey Gundlach said new Federal Reserve Chairman Kevin Warsh struck a more hawkish tone than many investors expected, underscoring his commitment to restoring price stability and signaling less appetite for easy monetary policy.
“He is absolutely telling you that he plans on delivering on price stability. So that means… we’re not going to have such easy money policy as everybody thought maybe Chairman Warsh would do back in the first quarter of this year, when everyone was counting on rate cuts,” Gundlach said on CNBC’s “Closing Bell.” “He doesn’t sound like that today at all.”
The comments came after the Fed’s policy statement declared that “the Committee will deliver price stability,” language that echoed a theme Warsh repeatedly returned to during his press conference. He reiterated that the Fed is committed to bringing inflation back down to 2%, a level it hasn’t been at for a half decade, a fact he lamented.
“The commitment to deliver is strong, unanimous, and unambiguous, and that’s I think an important message we’ve missed for five years, and we’re going to fix that,” Warsh said.
The tone was perhaps stiffer on inflation than investors and economists hoped for from President Donald Trump’s handpicked nominee for the role. The previous chair, Jerome Powell, faced a barrage of attacks from Trump for keeping rates too high.
Warsh also declined to submit an individual interest-rate projection in the central bank’s closely watched dot plot and signaled a broader review of the Fed’s communications framework.
Gundlach said Warsh’s emphasis on price stability lowers the risk that the Fed will pursue overly accommodative policies that could reignite inflation. That strengthens the case for owning long-term U.S. Treasuries, he said.
“I think there’s a greater reason to own long-term Treasuries today now that the new sheriff is in town,” Gundlach said. “If you’re going to get price stability, and if he doesn’t deliver on something that can be characterized as price stability, he’s basically announced today that he would be considered a failure.”
The billionaire bond investor said Warsh had effectively staked his credibility on bringing inflation under control, making aggressive rate cuts less likely.
“So he’s got to get that inflation rate down,” Gundlach said. “We don’t have to worry about the over-easing or overly accommodative rates that would put further pressure on the long bond.”

Source: CNBC

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