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- DoubleLine CEO Jeffrey Gundlach said Fed Chair Jerome Powell didn’t fight back against the stock market in his Wednesday speech.
- Powell radiated an air of confidence with his encouraging comments about inflation – and it resonated with investors.
- The US central bank hiked interest rates by 25 basis points on Wednesday as it pushes ahead with its fight against inflation.
Fed Chairman Jerome Powell didn’t fight back against the stock market pricing in the prospect of the US central bank softening its interest-rate policy later this year, according to Jeffrey Gundlach.
The so-called ‘Bond King’ said Powell exuded an air of confidence about his fight against inflation in his Wednesday speech, bolstering investor optimism that the Fed could soon turn pivot away from the current policy stance that favors higher borrowing costs.
“There was just something about his demeanor. He just seems like he has confidence, he feels comfortable in where he’s gotten to, and I think everybody kind of sensed that. And he obviously did not fight back against market pricing,” Gundlach said in a CNBC interview.
“Weird how he, at the same time, had this aura of relaxation and yet he did still talk tough,” Gundlach said. “But for some reason, the mood trumped and that rhetoric just didn’t seem to have the teeth or the intensity that he had last fall,” the DoubleLine CEO said.
US stocks initially fell on Powell’s latest policy move of a 25-basis-point rate hike, only to rebound on his encouraging comments about the central bank’s efforts to contain inflation. The latest gains add to a strong month for US stocks in January, with cooling inflation easing investor concerns about a looming recession.
The Fed has been persistent in its battle against consumer price pressures, raising the benchmark interest rate from near-zero levels to the current range between 4.5%-4.75%. That has proved successful in cooling inflation, with latest reading coming in at 6.5% – the lowest in over a year.
“I didn’t hear the word pain at all,” Gundlach said, referring to Powell’s latest comments on markets and the economy.
“He knows that the CPI is coming down and he’s using the word disinflation,” he added. Meanwhile, Gundlach noted that Treasury Inflation-Protected Securities (TIPS) have stopped rising. TIPS are bonds that take the effect of inflation into account.
“They’ve stopped going up and I have a feeling that real yields are going to not go up in the first part of this year. So that keeps a little bit of runway, I think,” Gundlach said.