Bond Investor Gundlach Questions Fed's Decision to Hold Rates Steady

DoubleLine founder Jeff Gundlach said on CNBC's "Closing Bell" on Wednesday that he does not understand why the Federal Reserve is holding off on further rate increases. "What are you waiting for? You just upgraded the economy right here," he said.

He was referring to remarks by Fed Chairman Kevin Warsh, who described a strong macroeconomic environment at the central bank's post-decision news conference. Gundlach pointed to inflation and commodities as reasons for concern. "We're headed to 4% handle headline CPI. The commodity index is rising in a bull market, and I don't understand why the Fed is so reluctant to move," he said.

The comments followed the Fed's decision to leave interest rates unchanged at its October meeting. At its September meeting, the central bank raised rates by 25 basis points. Gundlach told CNBC after that decision that the Fed should have gone further, arguing it needed a 50 basis point increase rather than a gradual approach spread over several meetings.

"I just think that the Fed is a little bit behind the curve right now," he said on Wednesday. He noted that the Fed's overnight rate of 3.75% to 4% sits well below the yield on the 2-year Treasury note, which trades around 4.7%. In his view, that gap signals the Fed needs to raise rates more than it already has.

Markets appear to share some of that expectation. According to CME's FedWatch tool, there is still an 85% chance the Fed raises rates by 25 basis points at its December meeting. In its statement, the Fed said 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.

"Absent a crack in the oil price, I think they have to hike in December," Gundlach said. U.S. oil prices continued to trade above $100 per barrel on Wednesday.

Gundlach said his own investment approach has not changed after the Fed's decision. He keeps 30% of his portfolio in equities, where he favors the equal-weight S&P 500 to limit exposure to what he calls potential artificial intelligence "problems." Another 30% is in bonds, 20% in commodities and 20% in "dry powder."

Warsh also announced a change to the Fed's meeting calendar. One of the eight scheduled gatherings in 2027 and two in 2028 will focus on policy strategy, with no 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.

"I don't think eight meetings is really necessary," he said. "It seems like they come up really quickly .. at least you have a couple months worth of data to filter in."