Stocks took another fall and panic enveloped the markets after Doubleline Capital CEO Jeff Gunlach, known as the “bond king”, said that the Federal Reserve bank may lower interest rates towards zero as reported on CNBC.
“Bond King” and DoubleLine Capital CEO Jeffrey Gundlach said Thursday that he believes the Federal Reserve panicked in cutting interest rates earlier this week and that short-term U.S. rates are headed for zero.
“If we look at history, once the Fed does a panic, intermeeting rate cut, particularly when it’s 50 basis points … they typically cut pretty quickly again,” Gundlach said. “I’m in the camp that the Fed is going to cut rates again, perhaps even in two weeks” during its regularly scheduled meeting.
The benchmark 10-year Treasury note yield hit an all-time low under 0.9% just after the longtime bond investor made his comments on CNBC’s “Halftime Report” around 12:40 p.m. ET. The 2-year U.S. rate hit also hit a record low of 0.554% earlier in the session.
“We will see short rates headed toward zero,” Gundlach added. And “when I say panicked, it doesn’t mean it’s not justified. Sometimes panic is justified.” (source)
It will be interesting to see the effects this has on the economy. The biggest winner will be consumers, who can use low interest rates to pay down debt and perhaps make purchases (so long as they can “lock in” their rates while they are low) that are above average. Bond losers, since their revenue comes from interest, are clearly the biggest losers.
It is not so much the reality of the effects this may have, but the perception of what effects it could have that is the most dangerous, for in times of fear, people do not think rationally, but react, and sometimes in dangerous ways.
For the individual, it is not so much of a good time to save money (although one needs to do this), but to pay off debts and prepare for the future.