Jeff Gundlach notes Import and Export prices, are looking encouraging. However, he also mentions that these prices are currently in negative double digits compared to previous years, indicating disinflationary pressure. Gundlach believes that the massive stimulus and economic distortions from 2020 and 2021 have led to inflation, which is still bubbling through the system. He mentions that M2 is negative year over year, but the monetary base is still significant due to the stimulus, suggesting that inflation may continue. However, he also acknowledges that the bond market has calmed down this year, contributing to a calming effect on psychology. Gundlach expects some sort of shock to the system due to historical patterns of inverted yield curves and tightening credit conditions. Despite the FED’s stance on keeping the meetings live and the possibility of a rate hike in September, Gundlach believes that Chair Powell does not want the market to believe the FED is on a long-term pause or that it will cut rates soon
When asked about the timing of the first rate cut, Gundlach predicts it will happen next year, driven by a drop in two-year yields, a steepening yield curve, and lower inflation rates. He mentions that he expects the core personal consumption expenditures (PCE) inflation rate to come down in the next few months, which could potentially support the case for rate cuts.
