Thomson Reuters
- The Fed's view that rising inflation will be temporary is just a guess, according to Jeffrey Gundlach.
- "There's plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis," Gundlach told Bloomberg.
- Gundlach believes US stocks are overvalued, and instead bought European stocks for the first time in years.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
The Federal Reserve has been consistent in telegraphing to the market that the expected jump in inflation over the next year will be temporary, but DoubleLine Capital's Jeffrey Gundlach disagrees.
Gundlach thinks the Fed is "guessing" when it comes to its view on inflation and warned that the central bank may be underestimating the impact of its easy monetary policies, according to a Tuesday interview with Bloomberg.
"There's plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months," Gundlach said. Gundlach pointed to a substantial rise in commodity prices and increased money printing as to why a jump in inflation will not be transitory.
Commodities like lumber, copper, and oil have surged so far this year, as demand increases amid a reopening economy and because of supply chain issues stemming from the COVID-19 pandemic.
To combat the economic fallout from the pandemic, the Fed lowered interest rates to near zero and launched an expansive monthly bond buying operation. But besides the Fed, Gundlach doesn't know who's going to step in to buy the massive bond market issuance that has come online in recent months.
"Who's going to buy all these many trillions of dollars of bonds? Foreigners have been selling for years and they've accelerated their selling in the last several quarters. Domestic buyers are not exactly selling, but they're not adding to their holdings. So what's left to absorb all of the spawn supply is the Federal Reserve," Gundlach said.
Gundlach's views on inflation translate into a bearish view on US stocks. The bond manager said the US stock market is overvalued by virtually every metric relative to foreign markets, and instead he is buying European equities.
"I bought European equities a couple of weeks ago, literally for the first time in many years. I can't remember the last time I did it. And that's largely because I think the US dollar is almost certain to decline over the intermediate to long term," Gundlach said.