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.”