DoubleLine Capital LP CEO Jeffrey Gundlach stated that investors do not expect the Federal Reserve to cut interest rates at its next policy meeting. "People were expecting two rate cuts this year, but the inflation market is simply not cooperating," Gundlach said in a program. "In my view, when the 2-year Treasury yield is nearly 50 basis points higher than the federal funds rate, a rate cut is simply not possible." Gundlach noted that Kevin Warsh, recently confirmed as the new Federal Reserve Chair, is stepping into a "difficult period" from the start. He predicted that the upward trend in inflation will continue, driven by surging oil prices due to the Iran war, which is impacting U.S. inflation reports. The U.S. Consumer Price Index rose sharply by 3.8% in April, marking the fastest pace since May 2023. Gundlach said DoubleLine's models forecast the next CPI reading will start with a 4. Despite market turbulence, stock market performance has been "extraordinarily strong." He stated, "When the Fed does nothing about inflation, the stock market throws a party." However, he indicated that the stock market itself currently carries inherent risks. "Market valuations are extremely high. Speculation is rampant, yet corporate profits continue to grow significantly," Gundlach said. "I believe this is fueling the speculative frenzy." Gundlach reiterated his warning on private credit. When asked if he was concerned about the sector, he replied, "I'm certainly worried." "The private credit market always seems to need new investors," he said. "Perhaps it's just sponsor greed at work; they always want to manage more and more assets."
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