Douglas Rissing
DoubleLine Capital CEO Jeffrey Gundlach said the Federal Reserve crushed the “goldilocks” theory as it kept interest rates unchanged at 5.25-5.5% on Wednesday.
In a CNBC interview, Gundlach said he believes the market was blindly optimistic, “pricing everything for perfection.”
He said the Fed’s dovish talk about the economy was meant to create a “goldilocks” scenario that would benefit risk assets. He also said that hearing investors talk about a “goldilocks” environment made him nervous.
“Today, [Jerome] Powell took Goldilocks away,” he said.
As the news broke out about the Fed’s decision to leave rates intact, and that it would probably not announce cuts in its next meeting in March either, stocks tumbled. The S&P 500 (SP500) is 1.6% down today, the Nasdaq Composite (COMP.IND) is 2.23% down today, and the Dow Jones Industrial Average Index (DJI) is 0.82% down today.
“For now, we think there will be a stall in the inflation rate coming down,” Gundlach said. “That will probably mean that the market is not going to get the ‘goldilocks’ picture that it was euphoric about a couple of weeks ago.”
He also said he expects a recession in 2024 along with a higher unemployment rate, as well as the continuation of the Fed’s strategy to stay higher for long, which could pose a negative risk to future growth.
In addition, he said bonds remain very attractive assets and likes cash and defensive bonds.
“I think you want cash to be able to get into emerging market trade once the economy slows and perhaps goes into recession,” he said. “If we go into the United States recession, I think we will see a buying opportunity and you want cash for that.”