CEO & Founder, DoubleLine Capital
Jeffrey Gundlach on Kevin Warsh and a New Era at the Fed | CNBC
DoubleLine CEO-CIO Jeffrey Gundlach joins CNBC’s Scott Wapner following Federal Reserve Chairman Kevin Warsh’s debut FOMC press conference, calling it the start of a new era. Mr. Gundlach’s key takeaways: Chairman Warsh repeated “We will deliver price stability” more than anything else, and his decision to buy time through five task forces rather than move rates suggests no action until at least the fall. Mr. Gundlach greets the inflation framework task force with some skepticism, noting it could open the door to measurement techniques that conveniently engineer a path to declaring price stabi...
About Jeffrey Gundlach
Jeffrey Gundlach, CEO and CIO of DoubleLine Capital, has been a frequent commentator on Federal Reserve policy and private credit markets in recent months. Following the June 2026 FOMC press conference by new Fed Chair Kevin Warsh, Gundlach described the event as the start of a "new era" and noted that Warsh repeated the phrase "we will deliver price stability" more than any other. Gundlach said Warsh's decision to create five task forces rather than move rates suggested no rate action until at least the fall, and he expressed skepticism about the inflation framework task force, saying it could open the door to measurement techniques that "conveniently engineer a path to declaring price stability." In earlier appearances, Gundlach stated that the odds of a rate hike by year-end 2026 were "better than the odds of a cut" and that he saw "no chance" the Fed would cut rates in 2026. Gundlach has also been a vocal critic of the private credit market, drawing parallels to the 2007 financial crisis. He argued that a "decline or elimination of trust" is already underway, citing a fund that was marked at 100 and then overnight at 81 as an example of questionable reporting. He described the industry's claim that illiquidity is a feature as "laundered volatility" and predicted that redemption requests from interval funds would surge around the "Ides of June." Gundlach said he had a "really hard time thinking about a government bailout" for private credit, noting that "this is the richest guys in the world making money in the Wild West." On markets, he recommended a 20% position in commodities and said he would "buy gold with both hands" if it fell to $3,500, after having predicted gold would go above $4,000 by the end of 2025.
Transcript (22 segments)
✨ AI-enhanced transcript with speaker attribution
H
Host0:19
Joined as always now by Jeffrey Gundlach. He is the DoubleLine Capital CEO and the CIO, the founder of that firm. It's so good to have you on what is clearly a new era in the Fed as Chair Wars laid out moments ago. What do you think?
J
Jeffrey Gundlach0:36
Well, there was a lot to digest there. He opened up by saying he's committed to moving the Fed forward and then he laid out what that meant with those five consultant task forces, I guess, is what I'd call them. I think he's buying himself some time. But the real phrase of the day without any doubt is 'we will deliver price stability.' He said it more than anything else. And one thing that might be in his favor on that, since he's buying himself some time and he talked about these task forces and that they would probably start working in the next several weeks and that maybe they get around to having some ideas or conclusions or suggestions somewhere in the fall. So that to me suggests that it's unlikely that rates will be changed until the fall. Also, inflation is, by our model which I predicted at our last conversation Scott, I predicted that the May CPI would have a four handle on it and that's exactly what it was. The good news is that our model shows that inflation will be dropping as we move towards the end of the year and based upon the commodity complex today could be as low as three and a half. I thought it was very interesting that Worsh said that he looks to the left of the decimal point on the inflation numbers and he says the one that's left to the decimal point on our target is 2%. Well, what that sort of suggests, I know for years there's been talk about maybe the Fed will raise their inflation target. It doesn't really mean two, maybe two and a half is okay. That's kind of what he said. I mean, if you really want to take it to the extreme, if it goes to 2.99, the number to the left of the decimal point is a two. So, I wonder if we're really talking about that price stability of two.
H
Host2:30
Also, one of those task forces is about inflation statistic frameworks and he talked about old data is an echo of the past and he wants more real time stuff. What that could open the door to, if you want to be cynical or conspiracy theorist, it might open the door for creating new inflationary views, new inflationary readings, new inflationary techniques which could perhaps, if you're a cynic, facilitate the road towards the proclamation that we've delivered on price stability. It was fascinating that there was like one question on the unemployment rate at least that I heard. I didn't hear the entire press conference, but that last question on the unemployment rate, it's very clear the total package of that press conference, it's very clear that the focus is on inflation and not on unemployment, the employment market having problems. He in fact said that the committee believes that the employment conditions are solid and even that half the committee thought they might be getting better. That further distracts you like a magician's trick distracting you from what's going on in the trick by focusing your attention on the other hand. So, but I really, what a change in tone. I mean, it sounds to me like perhaps the Fed is no longer going to just be following the two-year Treasury. I did a study on this. It goes back about 20 years and of course the Fed followed the two-year Treasury completely for 20 years and maybe that's not going to happen anymore. And I saw this fantastic chart, I think it's the best chart of the present moment from JP Morgan Asset Management. And what they did is they went back 55 years and looked at all of the Fed moves in the Fed funds rate. And they did a scatter chart and they had red dots which were tightenings and blue dots which were easings. And they basically on the x-axis was the ISM manufacturing employment index and on the y-axis was the ISM manufacturing price index. And if either of those are above 50, if the employment index is above 50, then it's strong. And if the price index is above 50, it means prices are rising. So what the scatter chart shows is that as you move from the lower left, when you start in the lower left, you have much more chance of easing because you have weak manufacturing employment and you have weak price movements. And as you move up to the upper right, it's mostly tightenings. Well, what's really interesting is that in the 70s, there were some blue dots in the upper right. That was under Arthur Burns when he was under pressure by Richard Nixon to cut rates for political reasons and he did it. And then, interestingly, in the lower left, there are actually three tightenings. Those are under Paul Volcker. So in spite of the fact there was very weak prices paid and very weak employment, Volcker raised interest rates and he didn't raise them following the two-year at all. You'll remember the people talk about the Saturday night massacre where on a Saturday night he raised rates mightily and he actually, Volcker from June of 79 until June of 83, Volcker was just all over the place relative to the two-year Treasury. When he raised rates for the first time up to 20%, the two-year Treasury never got above 15%. And when the Fed later on in the early 80s when the two-year Treasury was rising above the Fed funds rate and rising, he didn't care. He kept rates where he thought they should be. And I'm wondering if Chairman Worsh is going to be a little bit more agile, as I like to put it, like Volcker was, and not so slavishly tied to the two-year Treasury. I mean, if he was really tied to the two-year Treasury, I know he wants to buy time. He's getting himself settled in, but he would have raised rates today. The two-year Treasury is 50 basis points, more than 50 basis points now, above the median of the Fed funds rate. So, if he's following the two-year, he might have moved. But he knows as our model knows that inflation is going to be coming down into the threes perhaps maybe even three and a half by the end of the year and if oil goes even lower it could even go down to 3%. So, in that way, he's on the track to price stability. And so, he's bought himself some time to sort things out. And now, we've got some consultants that are going to help out, which I'm not really a big fan of consultants, but he wants to put his imprint on the Fed and he certainly has an ambitious agenda. And I applaud him for being original. I felt like the last three times we turned over the Fed chair, it was just a baton being passed and the methodologies basically weren't adjusted or even considered to be adjusted all the way along from Bernanke to Yellen to Powell. So this is a new era and he definitely is making no bones about it. So we'll see what happens. He keeps referencing six weeks from now. So my suspicion is there will be no hike six weeks from now.
It certainly I think was apparent today that there's a new sheriff in town and his name is Kevin Worsh.
J
Jeffrey Gundlach7:40
Yeah, that's... I talked about the sheriff last time. Yeah.
H
Host7:45
Yeah. And he's going to make changes. What's the most actionable thing you're thinking about knowing the kinds of changes that are coming and in some respects are already here, if any of those would inform the way that you would invest because many will revolve around giving guidance. Does the lack of guidance by the Fed make you less informed on how you want to make your own investing decisions? How are you thinking about what this new sheriff is going to mean for how you want to best invest in these markets?
J
Jeffrey Gundlach8:26
I've never been a fan of guidance from the Fed. I've never really followed it. I've always thought it was simply following the two-year. I've said that enough times that everybody knows what my opinion is on that. But I think that what he's doing is he's made a certain sense of a certain type of forward guidance today. And that is he is absolutely telling you that he plans on delivering on price stability. So that means that we're not going to have such easy money policy as everybody thought that maybe Chairman Worsh would do back in the first quarter of this year when everyone was counting on rate cuts because they thought Worsh was a peradov. Well, he doesn't sound like that today at all. So on that basis, I've been negative on long-term treasuries relative to say twos and five-year treasuries, but I think there's a greater reason to own long-term treasuries today now that the new sheriff is in town. Because if you're going to get price stability, and if he doesn't deliver on something that can be characterized as price stability, he's basically announced today that he would be considered a failure. So he's got to get that inflation rate down. So, at least it starts with a two on that left of the decimal point thing. And that means that we don't have to worry about the overly accommodative rates that would put further pressure on the long bond, which was kind of the reason that I was for several quarters relatively cautious on the long bond and favoring the intermediates. Now, I think that the long bond is better supported for the time being as he tries to work towards that lower inflation rate, which means probably hiking. If there's any pause in the progress of the inflation rate, as I said earlier, one thing that he's got in his favor is the inflation rate based upon where we stand right now is coming down. I heard David Kelly talk about that in the pregame show. I guess it's Halftime Report or whatever it is, but I agree with David Kelly that inflation is not really going to lead to tremendous evidence for a rate hike in the months ahead. After that, who knows? But I think we have rate stability and I think you have a better chance. It's funny, everybody talked about how maybe you should cut rates to improve housing affordability. That's just completely wrong. If the Fed were to cut rates, the long bond and the 10-year Treasury might have gone up in yield and not down in yield, which has been the case ever since this cutting cycle started in September of 2024. I mean, long rates are up, mortgage rates have risen from before the Fed started to cut rates. And so I think that actually him staying on hold and perhaps tightening should there be a necessity, that could anchor long rates to a certain extent and keep mortgages more affordable. Still they're at 6.12%. Maybe they could actually drop down to 6.25% or something if the Fed were to gain the confidence of investors that they're serious, as he said repeatedly, about price stability, which means a number that starts with two and we're not close to that because right now we're double that.
H
Host11:51
Well, for the record, the prior program's called Power Lunch, but you get a big pass because I called this program Halftime Report and in fact, it's Closing Bell. So, it is what it is.
J
Jeffrey Gundlach12:00
That's good.
H
Host12:01
Yeah. Money.
J
Jeffrey Gundlach12:03
Yeah. Sit tight. Well, that's good, too. Sit tight for a moment. And Jeffrey, you know, how much of what is unambiguously, I'll use it myself. The dot plot being more hawkish, nine members projecting a hike, five seeing two, one seeing three, eight projecting a hold. How much of that do you think is around the idea of jawboning the market a bit rather than actually following through on a hike which would have a much more serious impact on the certainly on equity prices not even counting what bond yields might do.
Yeah, I agree. Jawboning is probably a good word. I call it buying time. I mean, I think if you put a couple of members with two or eight hikes by year end and you've got a third one with three hikes, that's a pretty good jawbone right there because it suggests that there could be some significant movement should it be warranted. The thing is, a two-handle and a three-handle are very different things on inflation. For the past 20 years, inflation was going up until 2020. Past 20 years, the core CPI was going up exactly at a 2% trend. It was amazing how it didn't really deviate even on a monthly basis hardly from going up at a 2% clip. And then COVID came and it went obviously the slope got much steeper. But now if we're going to get for the fullness of time from 2020 to 2026 rather up to 2031, if we're going to have 2% be the actual inflation core CPI trend over that 25 year time period, you would actually need the inflation rate between now and 2031 to be zero. Absolutely zero. And if you wanted to get back to that 2% trend line for the fullness for 10 years forward, you'd have to have a 1% inflation rate for that entire period. And if you wanted to get there by 20 years from now, you would need inflation rate for all those 20 years to be at 1.5%. So that's what's so dangerous about saying, well, three is not bad. Kind of sounds like two. No, they're very different. The thing about compound interest is how much more powerful it is than people's intuition usually informs them. So I think that this 2% inflation thing has been so out of whack for the past 5 years and Worsh started out with that saying we've been nowhere close to price stability for over 5 years here. That just shows that he realizes the big difference between a three to the left of the decimal point or a two to the left of the decimal point and he knows we need to get there and I applaud him for that. I think it's very refreshing to see him at least try to, in his words, move the Fed forward because it does feel like it's been awfully dusty and musty at the Fed for a couple of decades now. So I welcome his enthusiasm. I'm not a big consultant fan, but hopefully they will get good advice and be able to act on some ideas that need to be refreshed after a decade's long framework. I really agree with him on that. It's interesting. Ever since 2020, a lot of things haven't worked anymore that used to work in predicting markets. Like the copper gold ratio used to be this awesome way of a starting point for the 10-year Treasury, and it worked for decades with an amazing accuracy. And then starting in 2020, it just doesn't work at all. If you do the copper gold ratio, it would predict that the 10-year Treasury should be at something like 1% today because gold is up so much. Copper's up, too, but gold was up so much. It just doesn't work. The leading economic indicators haven't worked. They've been negative for years and there has been no recession. A lot of things haven't worked. The consumer sentiment figures today, they make no sense in the context of the 12-month inflation, the S&P 500 for the past 12 months, the unemployment rate for the last 12 months, consumer spending for the past 12 months. You'd expect that the University of Michigan consumer sentiment index would be up at like 75 or 80 or something and it's instead at the lowest reading, or it was until this week, the lowest reading of all time. And so it seems that things have gotten kind of out of whack and it makes sense to be reforming the process at the Fed and that includes the communication. I mean, I love his five points. I hope we can get some meaningful accomplishment on them. What do you think about the dollar? Obviously it was reacting to the more hawkish tilt. I'm wondering what you think now the outlook for that is, whether it has a more durable rise until it sees whatever the Fed is really going to do next. But the language itself and this more hawkish jawboning could certainly have a more dramatic impact. What do you think?
Yeah, the dollar has been on the DXY index which is heavily euro influenced, but the dollar has been incredibly stable for the past year, even 18 months. It's almost no range at all. It almost looks like it's manipulated. But I think that this would be, on the margin, positive for the dollar. What's fascinating with the dollar with the DXY index just going sideways really over the past 18 months or so, emerging markets have done great. Usually the dollar going down really fuels emerging markets. But the dollar going sideways has been enough of not strength so that the emerging markets just continue to outperform. And emerging market local currency bonds are the best performing for dollar-based investors year to date. That might be on pause now or maybe on hold because the dollar is unlikely to drop given the jawboning that you referenced earlier. Also, emerging market equities have done great in particularly in selected countries like Korea, which had this thing of relaxing capital gains taken on non-international investments outside of Korea. As long as you repatriate it back to Korea, that's why the Korean stock market's up 125% year to date. It's kind of either, but I think this tax holiday and that's helped a lot for emerging markets, but anything that's up 125% in 6 months, I don't want to play. I respect the momentum, but I don't want to play. It's like I am with SpaceX. I respect the momentum, but I don't want to play. I mean, the total addressable market for the S-1 of SpaceX is one quarter of world GDP. So, that's you talk about ambitious, that's an ambitious S-1 right there. But it certainly got the imagination of investors.
H
Host19:06
I want to let our viewers know that obviously the president is at the G7 in France traveling for a dinner this evening at Versailles outside of Paris. He was asked by the group of reporters in Paris about this decision today to hold rates where they are, to which he said quote, 'It's all right.' He was also asked about the possibility of the Fed even raising interest rates at some point to which the president said, and I'm quoting here, 'It's hard to believe. It just keeps the country down and it's so unusual, but we have a very good guy over there right now,' obviously alluding to his handpicked chair of Kevin Worsh. So, I'm guided by what he wants. It just introduces the other variable here, Jeffrey, of a new Fed chair, one picked by the president as chair Powell was, and making it clear there are going to be times where these two gentlemen just don't see eye to eye on the direction of policy. And we're going to be talking about Fed independence, I believe, multiple times during this tenure of Kevin Worsh. What do you think?
J
Jeffrey Gundlach20:18
I'm glad that he didn't start a fight on day one or press conference one. I'll say that. But I guess what my broader thought is, thank goodness Donald Trump is not the chairman of the Federal Reserve because he would have interest rates at negative 37 and a half basis points pretty quickly and that would be a disaster. I mean, when you're a debt-based developer, you love low interest rates. I mean, that's what your DNA is about. But if you're a bond investor, you don't want negative interest rates versus the inflation rate. You don't want super easy money. If you had interest rates cut between now and year end by anything more than one cut, even if it was just one cut, I think the long bond would go up 100 basis points in yield. So, I'm glad that Worsh is not being challenged at least yet by Trump. I'm sure he will be at one point. If you get a rate hike between now and year end, I think the battle will probably be on.
H
Host21:24
I'll note the markets reacting as we speak. We're at the lows of the session. Certainly on equities, Jeffrey, Dow's down about 600 points this after hitting a new record high yet again. The S&P 500's down by almost 1.5%. Mentioned the dollar rising, yields are up. This more hawkish tone and tilt has certainly unsettled an equity market that has really been robust to say the least in many different areas.
J
Jeffrey Gundlach21:53
Yeah.
H
Host21:54
Lastly before I let you go, let me get your thought on the equity market here.
J
Jeffrey Gundlach22:00
Well, I think the equity market is very, very high after a thrilling run up. Obviously the S&P 500 is totally concentrated in 10 names. It almost got to 50% last week I think in the 10 names. I think that the spending cycle, the gargantuan spending cycle has obviously led to real-time earnings being off the chart and the earnings have driven the stock market. The backside of that is going to be the funding of all of that and that's going to be kind of a negative going into the market. I don't really like the US market here. I think it's very, very high. I'm much more interested in non-US markets particularly in the emerging market names that we've talked about in the past. So I'm not very involved in the US equity market. To the extent I am involved, I own things that are not momentum based or are not cap weighted, but I think it's time for that to be more of a leader rather than just a laggard, so that's where I'm involved in the equity market in the US.
H
Host23:08
Got about 6 weeks until I see you again and I look forward to that. It is a new Fed and we will cover it together as we have for the last handful of years. Thank you again, appreciate it.
J
Jeffrey Gundlach23:20
Thanks, Judge. I enjoyed it. Our 44th time on, onward to another 44.
H
Host23:25
All right, we'll see what we can do. Jeffrey Gundlach, thanks so much.