DoubleLine Capital chief executive Jeffrey Gundlach said the Federal Reserve may expand its balance sheet after its repurchase operation on Tuesday.
Gundlach called the operation, which involved the central bank repurchasing $53 billion in debt securities as a means of controlling the benchmark interest rate, a 'warning sign' and a way of 'baby stepping' to more quantitative easing.
'I think the Fed will go back to what they did pre-credit crisis, which was to expand their balance sheet,' said Gundlach in a webcast for investors in his $54 billion DoubleLine Total Return Bond fund.
When asked what advice he would give the Federal Reserve, he said: ‘Develop a framework and stop changing your message every six weeks. Jay Powell reminds me of a junior trader; every day the market is up they turn bullish and every day the market is down they turn bearish.’
He also said that Treasury yields likely hit their lowest point of the year when they fell to 1.42% earlier this month, and that the July 2016 yield of 1.36% would likely be the historical low.
Gundlach reiterated his predictions about the economy entering a period of negative growth. At a recent London conference the he had said there was a 75% chance of a recession hitting the US economy before next year's election.
‘The economy is certainly not great at the present time but I wouldn’t call it quite as distressing at the current time as it was in August,' he said.
He also reiterated his view that there is no chance of a trade deal between the US and China before the US elections.
‘It’s interesting to notice how the markets ebb and flow with rhetoric about the trade war,’ said Gundlach, who added that China was likely to wait the election out and test its chances with the Democratic hopeful, whoever that may be.
Gundlach manages the DoubleLine Total Return Bond fund alongside Andrew Hsu and Philip Barach. It is ranked six out of 34 US Mortgage funds tracked by Citywire for three-year total returns to the end of August. During that time it was up 10.7% compared to the category average, which was up 8.7%, and the Bloomberg Barclays US Aggregate Bond TR index, which was up 17.9%.