DoubleLine CEO Jeffrey Gundlach said the Federal Reserve might need to embark on quantitative easing to increase the money supply.
“One thing that might have to happen here is the Fed might have to start ‘QE lite’ as I call it, meaning they go back to expanding their balance sheet in line with the increase in currency to get the free reserves in the system higher,” Gundlach said on CNBC’s Halftime Report on Wednesday.
Gundlach highlighted the “kerfuffle” in the money markets and the “amazing” move in the fed funds target rate, which led the central bank to conduct repurchase operations for the first time in a decade.
“Clearly short-term rates getting out of the Fed’s control even shortly is problematic,” the so-called bond king said. “The problem is there’s not enough reserves in the system to provide liquidity … It just seems to me the Fed is almost anxious to increase start increasing its balance sheet again.”
In a rare move, the Fed’s own benchmark fed funds target rate rose to 2.3% on Tuesday, above the target range set when it cut rates at its last meeting in July.
Gundlach predicted interest rates have bottomed for this year after dipping to their historic lows in August on fears of a global economic slowdown. He said QE will drive long-term borrowing cost higher.
“Historically, quantitative easing has actually been correlated with the rising in long-term interest rates,” he said, adding the drastic decline in rates last month was due to “panic buying.”
The Fed will announce their decision on interest rates on Wednesday. Gundlach said he expects the Fed to cut rates by a quarter point.
Gundlach, a respected markets forecaster, oversees $140 billion of assets under management at DoubleLine, according to its website.