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“Bond King” and DoubleLine Capital CEO Jeffrey Gundlach said Thursday that he believed the Federal Reserve had panicked by cutting interest rates earlier this week and that short-term US rates were heading toward zero.
“If we look at history, once the Fed has panicked, the drop in inter-meeting rates, especially when it is 50 basis points … they fell again pretty quickly,” said Gundlach. “I am in the camp that the Fed will further cut rates, maybe even in two weeks” at its regular meeting.
The benchmark 10-year Treasury bill hit a historic low of 0.9% just after longtime bond investor commented on CNBC’s “halftime report” to 12 h 40. AND. The 2-year US rate also hit a record low of 0.554% earlier in the session.
“We will see short rates go to zero,” added Gundlach. And “when I say panic, it doesn’t mean it’s not justified. Sometimes panic is justified.”
“Commercial activity is expected to contract,” he said. “I have received several emails today from customers who plan to visit DoubleLine telling them that they are canceling them.”
On Tuesday, the Federal Reserve unexpectedly lowered its benchmark interest rate by 50 basis points, saying that the spread of the coronavirus “presents evolving risks to economic activity”. The move marked the first time since the financial crisis that the US central bank was forced to impose lower emergency rates.
The move did not allay stock market concerns about the potential economic impact of the coronavirus epidemic, but triggered a sharp drop in US short-term rates. Markets still fear that the disease will prevent large exporters, such as China, from sending components to American manufacturers and having a ripple effect on global growth.
Risk assets continued to slide on Thursday, as the Dow Jones Industrial Average fell more than 900 points, or 3.4%. The S&P 500 fell 3.3%, pulled by regional banks and rate-sensitive consumers who generate profits from loans.
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