Gundlach says Fed cannot cut rates as two‑year yield outpaces funds

Jeffrey Gundlach, chief executive of DoubleLine Capital, told Fox News’ Sunday Morning Futures that a Fed rate cut at the upcoming policy meeting is “just not possible” because the two‑year Treasury yield sits roughly 50 basis points higher than the federal funds rate【1】.

He said investors had been hoping for two cuts this year, but “the inflation market has simply not cooperated.” The backdrop is a surge in oil prices driven by the Iran war, which fed into a 3.8% consumer‑price index rise in April—the fastest increase since May 2023【1】. Gundlach’s own models project the next headline CPI print will begin with a “four,” indicating further inflation pressure【1】.

Despite the stubborn price environment, the equity market has remained “remarkably strong,” a dynamic Gundlach attributes to the Fed’s inaction on inflation. “When the Fed isn’t doing anything about the inflation problem, the stock market goes on a tear,” he said, noting that earnings continue to outpace expectations even as valuations become “very expensive” and “very speculative”【1】.

Gundlach also warned that the private‑credit sector is vulnerable, describing it as a market that “always needs new investors” and suggesting sponsor greed may be driving asset accumulation【1】. His broader view is that the Fed’s tightening cycle has left rates too high for too long, and even a 50‑basis‑point cut—if it occurs—would be “out of touch” with the inflation reality【2】.

The implication for investors is a continued environment of high yields and limited policy relief, with equities buoyed by earnings but priced at riskier levels. As the Fed’s next decision approaches, market participants will watch whether the central bank’s stance shifts or remains constrained by the inflation‑driven yield curve.