Gundlach Says Fed Shouldn't Start Liftoff Amid Economic Weakness

  • DoubleLine co-founder warned against rate hike earlier in 2015
  • L.A. firm's funds have grown and outperformed peers this year

Jeffrey Gundlach, whose $50.5 billion DoubleLine Total Return Bond Fund has outperformed 94 percent of peers this year, says the Federal Reserve shouldn’t raise rates because the economy is showing more signs of fragility and support for the move is limited.

“It’s a coin flip as to whether the Fed’s going to raise rates in December, which means they should not do it,” Gundlach, co-founder of DoubleLine Capital, said Thursday at an investment conference in Newport Beach, California. “You should not set monetary policy with coin flips.”

Gundlach, 56, has been critical of a 2015 liftoff, saying the economy still needs the Fed’s stimulus of low interest rates even as other bond managers, including Janus Capital Group Inc.’s Bill Gross and BlackRock Inc. Managing Director Rick Rieder, urged immediate action. In Gross’s monthly letter in September, he said the Fed should “Get off zero now!” and risk trading some near-term market losses for longer-term stability.

“I thought they should move for a number of months,” Rieder said in a talk at the Fixed Income conference, before Gundlach spoke.

The odds of the Fed raising rates at its December meeting for the first increase since 2006 climbed to 56 percent this week, according to data compiled by Bloomberg. Fed Chair Janet Yellen told Congress on Wednesday a rate increase is a “live possibility” if U.S. economic data hold up. The Bureau of Labor Statistics reports October employment data on Friday.

Loud Screaming

Gundlach said factors such as low or negative inflation, struggles in emerging markets, depressed oil prices, lack of wage increases and a strong dollar make it a bad time for Yellen’s team to begin increasing the Fed Funds rate, a position he took in September when the Fed was also weighing an increase.

“All of these things seem to be screaming fairly loudly, ‘Dammit Janet, don’t raise rates!’” he said on a Sept. 8 webcast, the week before Fed policy makers met and decided against a rate increase. In October, Gundlach told Reuters, “If the Fed raises rates against this backdrop, it just makes things worse.”  

DoubleLine Total Return, which primarily invests in mortgage-backed securities, added inflows of $1.24 billion in October, bringing the fund’s total assets under management to $50.5 billion, the Los Angeles-based company said Thursday.

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