The Federal Reserve decided to maintain its interest rates unchanged on Wednesday, following three consecutive cuts to close out 2024. This decision comes amid the Fed's ongoing assessment of labor market conditions and inflationary pressures. Meanwhile, Jeffrey Gundlach, CEO of DoubleLine Capital, shared his insights on future rate adjustments during an appearance on CNBC's "Closing Bell." Gundlach anticipates only one rate cut for 2025, with a maximum potential of two.
Gundlach emphasized that his outlook for rate cuts is cautious. While he acknowledges the possibility of a second cut, he does not predict it as a certainty. Instead, he considers it the outer limit of what may occur in the coming year. The Federal Reserve's patient approach to economic indicators reflects its reluctance to rush any policy changes, with Fed Chair Jerome Powell affirming the strength of the current economy.
"Maximum two cuts this year. And I mean maximum, I'm not predicting two cuts. I just think that's the most you can possibly think about," – DoubleLine Capital CEO Jeffrey Gundlach
The benchmark 10-year Treasury rate has surged approximately 85 basis points since the Federal Reserve initiated its rate cuts last year. Gundlach believes there is further room for long-duration Treasury yields to rise, suggesting that interest rates have not yet peaked on the long end. His caution extends to the broader investment landscape, where he advises against owning high-risk assets due to his perspective on long-term interest rates and current high valuations.
"I think that rates have not peaked on the long end," – DoubleLine Capital CEO Jeffrey Gundlach
The Fed's decision to hold rates steady aligns with its strategy of meticulously analyzing incoming economic data. Powell has indicated that there is no urgency to alter the current policy stance. This measured approach suggests that any potential rate cuts will be carefully considered based on evolving economic conditions.
Gundlach's forecast for 2025 remains conservative, as he anticipates a gradual path towards rate reductions. He believes that it will take time to meet the criteria necessary for further cuts, making a rate cut at the next Federal Reserve meeting unlikely.
"It's going to be a slow process to get to a hurdle to cut rates again. … I don't think you're going to see a cut at the next Fed meeting," – DoubleLine Capital CEO Jeffrey Gundlach
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