The Federal Reserve is currently on pace to end its quantitative easing program in October, but Jeff Gundlach sees this program making a comeback — in the 2020s.
In an interview with The Financial Times, Gundlach, the founder, CEO, and CIO of DoubleLine funds says that 2020 is an “interesting timeframe.”
The FT’s Stephen Foley notes, however, that, “When a bond market maven says ‘interesting,’ be scared.”
Foley writes that on Gundlach’s list of “interesting” developments are the Fed’s holdings maturing, soaring deficits due to a drain on social security, and high-yield debt issuers needing to refinance.
Gundlach told the FT, “It seems like one of the consequences of this zero interest rate policy is you’ve pushed out the problem of refinancing, of rolling over, but you’ve really compounded the magnitude of it and it seems to be focused around the 2020s.”
One reason the Fed may have to resurrect quantitative easing by then, Gundlach said, is that investors seem to be deluded about growth prospects. They all cling to the notion of “escape velocity,” he said, “and then all of a sudden they won’t.” Gundlach still doesn’t expect 2014 GDP to exceed 2% for the full-year.
Foley’s whole interview is well worth a read, providing yet another bit of insight into the mind of one of the most important people in the bond market.
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