Following up on his dire comments from yesterdyay, when he said that “central banks are losing control”, an assessment confirmed today not only by Yellen herself but by the Fed’s biggest cheerleader Steve Liesman, this afternoon, in the aftermath of a disastrous performance by Janet Yellen, Gundlach took the podium again and told Reuters that the Fed is “no longer trying to prepare the markets for rate hikes because they are no longer certain they are going to raise them.”
Echoing Liesman’s dour mood, Gundlach said that “the ‘rate hike cycle’ has left the building,” after Wednesday’s decision by Fed policymakers to leave rates unchanged. “They are not preparing the markets for a rate hike at all,” he said.
Which is logical: the Fed itself has no idea what it will do. Worse, the Fed has now made it clear. “What I think is that the Fed doesn’t believe their own ‘dot plot’ anymore,” said Gundlach, who oversees $100 billion at Los Angeles-based DoubleLine Capital.
As Reuters adds, even steady Fed hawks backed away from pushing for a hike at Wednesday’s meeting, analysts noted. “It’s as dovish as the Fed can get without actually cutting rates. Even (Kansas City Fed President) Esther George withdrew her dissent. The path of rates is lower, which is a big dovish swing,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management.
But what is most troubling is that despite the Fed’s major dovish relent, its second one this year, stocks swooned, in a repeat of what happened in January. In other words, prepare for a barrage of “Policy Error 2.0” headlines and article.
Gundlach said he does not believe U.S. economic growth is strong enough to justify the two rate hikes the Fed is planning later this year. “I just don’t see it. They’ll be lucky if they can raise it once.”
His damning conclusion “Yellen sounds like she doesn’t have confidence anymore. She is backing away from any forecast. She is simply saying, ‘I really don’t want to forecast anymore.’ We are done with this forecasting game. The subtext is that ‘we’ve been so wrong forecasting the data, we should stop’.”
We would go one further: the Fed should just disband itself because having trapped itself at the pinnacle of what may be the final bubble, one that allowed the US markets and economy to kick the can for nearly another decade, the only way from here is down. And it will be painful for everyone.
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