“I’m almost certain that Janet Yellen doesn’t want to raise interest rates.”
On Tuesday, DoubleLine’s Jeff Gundlach held his latest webcast presentation giving an overview of his views on the markets and the economy, and among his key points was his belief that the Fed is not going to raise rates as much — or as quickly — as some might expect.
Federal Reserve Chair Janet Yellen has long said she remains focused on the health of the labour market, and in her most recent public comments at Jackson Hole, said that given the current state of the labour market, “There is no simple recipe for appropriate policy in this context.”
And for Gundlach, one chart makes clear why Yellen’s desire to raise interest rates is likely far less than many assume.
Wages as a per cent of GDP remain near multi-decade lows, and until this trend shows any sign of improvement, Gundlach doesn’t think that Yellen will want to do anything with interest rates.
Gundlach also noted that real wages for the bottom seven deciles of earners have fallen between 2007 and 2014, to which Gundlach said, “It seems tough that with so many workers losing purchasing power on a year-over-year basis, you could raise short-term interest rates.”
Many in the market seem to believe that after the Fed concludes in quantitative easing program in October, the Fed will be pressed to raise rates in the face of a growing economy and improving labour market.
But without any meaningful wage gains, which would require the reversal of a generational trend, Gundlach’s view is clear: “This is why Janet Yellen doesn’t want to raise rates.”