March 28, 2016 / 8:08 PM / a year ago

Gundlach says April rate hike 'inconceivable' after lower GDP forecasts

Jeffrey Gundlach, star bond investor and head of DoubleLine Capital, speaks at the Sohn Investment Conference New York, in this file photo dated May 8, 2013. REUTERS/Brendan McDermid

NEW YORK (Reuters) - Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, said on Monday that an interest-rate increase by the Federal Reserve in April is “inconceivable,” given lower forecasts for first-quarter GDP growth.

The Federal Reserve Bank of Atlanta’s GDPNow model on Monday predicted growth at a 0.6 percent pace in the first quarter, marked down from an earlier estimate of 1.4 percent. And forecasting firm Macroeconomic Advisers estimated GDP growth at a 1 percent pace in the first three months of 2016, down from an earlier prediction of 1.5 percent.

“With GDPNow just slashed to 0.6 percent, an April rate hike should be inconceivable,” said Gundlach, who oversees $93 billion at Los Angeles-based DoubleLine Capital. “What would last week’s ‘faction of five’ say now?” Gundlach was referring to the hawkish tone on interest rates by Atlanta Fed President Dennis Lockhart, St. Louis Fed President James Bullard, San Francisco Fed President John Williams, Federal Reserve Bank of Richmond President Jeffrey Lacker and Federal Reserve Bank of Philadelphia President Patrick Harker.

Just days after the Fed held interest rates and cautioned “global economic and financial developments continue to pose risks,” Lockhart said the United States may be in line for an interest rate hike as soon as April given “sufficient momentum” in U.S. growth.

The Federal Open Market Committee meets next on April 26-27.

Gundlach has been a harsh critic of the Fed. Last week, Gundlach criticized Fed officials for changing their stance on interest rates. “They’ve been flip-flopping like crazy over the past few months,” he said.

Gundlach suggested Fed chair Janet Yellen and the Federal Open Market Committee should have the same message after an FOMC meeting “for at least two weeks.” Gundlach said this would help with the U.S. central bank’s credibility.

Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, Gundlach correctly forecast U.S. Treasury yields would fall, not rise as many others had expected.

Reporting By Jennifer Ablan; Editing by Chizu Nomiyama

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