DoubleLine Capital CEO Jeffrey Gundlach said it’s “very likely” that the Federal Reserve will raise interest rates by half a percentage point at its next policy meeting. “After Powell’s testimony today, the chances of a 50-basis point increase have gone up a lot in the betting markets,” Gundlach said Tuesday during a DoubleLine investor webcast. “We’ve had a very large increase in short-term interest rates and a further inversion of the yield curve. … We don’t need the Fed. All we need is the 2-year Treasury.” The yield on the 2-year U.S. Treasury note jumped over 12 basis points to top 5% on Tuesday, reaching its highest level since 2007. The sharp move higher followed Fed Chairman Jerome Powell , who said interest rates are “likely to be higher” than previously anticipated. The so-called bond king said the Fed funds rate has almost perfectly mirrored the 2-year Treasury yield over the years. “It’s now corroborating the idea that the Fed will probably take the Fed funds rate up to 5% at the upcoming meeting,” Gundlach said. The probability of a half-point increase rose to 70.5% Tuesday evening, according to CME Group data. That’s up sharply from 31.4% just a day ago. The Federal Open Market Committee’s two-day meeting begins on March 21. “The only way that won’t happen is if the employment data and the unemployment rate … surprises to the downside. That has not been the pattern recently,” Gundlach said. “If it comes in at or above expectations, I think it’s a lock that the Fed’s going to go with 50 basis points at a minimum.” In Senate testimony, Powell noted that the labor market remains “extremely tight” despite the Fed’s rate hikes and attempts to cool economic growth. “We’re very far from our price stability mandate, and in effect the economy is past most estimates of maximum employment,” Powell said. The Fed has boosted the federal funds rate eight times to a target range of 4.5%-4.75%, the highest since October 2007.
