Written by: Huang Wenwen, Wall Street News
The September interest rate decision is about to be made, and the market is full of voices. Traders continue to have different attitudes on whether the first rate cut will be 25 basis points or 50 basis points.
Jeffrey Gundlach, founder of DoubleLine Capital and the new bond king, has also joined the debate on the size of the rate cut and is betting that the Federal Reserve will start its rate cut cycle by cutting the rate by 50 basis points at its interest rate meeting on Wednesday.
Speculation that the Federal Reserve is ready to quickly cut its benchmark interest rate to prevent the economy from stalling has driven bond markets, with the yield on the two-year Treasury note falling below 3.6%, about 1.75 percentage points below the Fed's target rate.
As of now, the yield on the two-year U.S. Treasury note is 3.596%.
Gundlach thinks the Fed should close that gap. He predicts the Fed is likely to cut rates by 50 basis points this time around, for a total of 125 basis points by the end of the year.
On Tuesday, he said at the Future Proof conference in California that the U.S. economy is already in recession and the Federal Reserve has maintained tight policy for too long:
"I think they're going to cut rates by 50 basis points. The Fed is 'way behind the curve' and they should act fast."
Traders see about a 55% chance of a 50 basis point rate cut. U.S. data on Tuesday showed an unexpected rise in retail sales in August, while employment data for August also showed weakness, with hiring slowing significantly and the unemployment rate rising to 4.3%, the highest in nearly three years.
Gundlach said he gave the Fed an "F grade," adding that "they should have cut rates sooner... I'm seeing a lot of layoff announcements, and the U.S. is already in a recession."
