Gundlach Warns Fed Is Lagging as Oil Tops $100 and Yields Diverge

Jeff Gundlach, founder of DoubleLine, accused the Federal Reserve of falling behind the curve during a Wednesday interview on CNBC's Closing Bell. The bond investor questioned why the central bank is pausing after a September rate hike, pointing to a widening gap between policy rates and market yields as evidence that inflation remains a threat.

Gundlach specifically cited the strength of the macroeconomic environment described by Fed Chairman Kevin Warsh at the post-decision news conference. He argued that the Fed upgraded its economic outlook without adjusting its monetary stance accordingly. "What are you waiting for? You just upgraded the economy right here," Gundlach said.

The comments follow the Fed's October decision to leave interest rates unchanged. At its September meeting, the central bank raised rates by 25 basis points. Gundlach had previously argued that a 50 basis point increase was necessary rather than a gradual approach spread over multiple meetings. He now believes the Fed needs to raise rates more than it already has.

The primary driver for Gundlach's urgency is the divergence between the Fed's overnight rate and bond market pricing. The current policy rate sits at 3.75% to 4%, while the 2-year Treasury note trades around 4.7%. Gundlach stated that this gap signals the Fed is behind the curve. He also pointed to rising commodity prices and a trajectory toward 4% headline CPI as reasons for concern.

Market data suggests some investors agree with Gundlach's assessment. According to CME's FedWatch tool, there is an 85% probability that the Fed will raise rates by 25 basis points at its December meeting. The central bank stated it will use further information to determine the correct policy to bring inflation back to its 2% goal. Warsh reiterated at the press conference that future policy decisions cannot be determined at this time.

Gundlach noted that U.S. oil prices continued to trade above $100 per barrel on Wednesday. He said that unless there is a crack in the oil price, the Fed has to hike in December. He added that his own investment approach has not changed, maintaining a portfolio split between equities, bonds, commodities, and cash.

Warsh also announced a change to the Fed's meeting calendar, designating one of the eight scheduled gatherings in 2027 and two in 2028 to focus on policy strategy without a vote on the fed funds rate. Gundlach said the move did not surprise him and that he would favor having only six rate-setting meetings starting immediately to allow more time for data to filter in.