NEW YORK Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday he expects the Federal Reserve to begin a campaign this month of "old school" sequential interest rate hikes until "something breaks," such as a U.S. recession.
Gundlach, who oversees more than $101 billion at Los Angeles-based DoubleLine, said U.S. economic data support a rate increase as soon as the next Fed policy meeting on March 14-15, and further rises this year, after a series of false starts in 2015 and 2016.
"Confidence in the Fed has really changed a lot," Gundlach said on an investor webcast. "The Fed has gotten a lot of respect with the bond market listening to the Fed" now that economic data support the tough rhetoric from Fed officials.
New York Fed President William Dudley, whose branch of the U.S. central bank serves as its eyes and ears on Wall Street and who generally spends a couple of hours a week planning policy with Fed Chair Janet Yellen, played a key role in orchestrating the messaging of a March rate hike.
Dudley gave markets an initial jolt when he said in a television interview last week that "animal spirits had been unleashed." Dudley also said the case for tightening monetary policy "has become a lot more compelling" since the election of President Donald Trump and a Republican-controlled Congress.
Gundlach, known on Wall Street as the "Bond King," said on the webcast that inflationary pressures are increasing as well as business confidence, which will translate into a stock market that will "grind higher."
But Gundlach, who repeated his warning Tuesday that U.S. stocks are not cheap, said he holds Treasury inflation-protected securities and gold against this economic backdrop.
Gundlach added that a short position on German 10-year bunds was "a hell of a lot smarter than going long" the securities. As for financial stocks, Gundlach told Reuters in an interview that he sold his stake in bank and financial shares because "the easy money has been made."
(Reporting by Jennifer Ablan; Editing by Chris Reese and James Dalgleish)