Fed Rate Pause and Gundlach's Call for December Hike with 4% CPI Outlook

Published on 10/28/2026 · Source: cnbc.com

#DoubleLine #FederalReserve #CPI #Bonds #Oil

Fed Rate Pause and Gundlach's Call for December Hike with 4% CPI Outlook

AI Summary

Summarized by AI from the source below

Jeff Gundlach, founder of DoubleLine, expressed confusion over the Federal Reserve's decision to hold interest rates steady after its October meeting. He referenced Fed Chairman Kevin Warsh's comments about a strong economy and said the headline Consumer Price Index (CPI) is headed towards 4%, with commodities in a bull market. Gundlach criticized the Fed for being "behind the curve," noting that the current overnight rate of 3.75%-4% is below the 2-year Treasury yield of 4.7%, suggesting more rate hikes are needed.

Despite the Fed's pause, CME's FedWatch tool shows an 85% probability of a 25 basis point (0.25%) rate hike in December. Gundlach supports a December increase unless oil prices decline significantly; U.S. oil prices remained above $100 per barrel. He maintains an investment portfolio allocation of 30% equities, 30% bonds, 20% commodities, and 20% cash, favoring an equal-weight S&P 500 approach.

Fed Chairman Warsh also announced adjustments in future meeting plans, stating that one meeting in 2027 and two in 2028 will focus solely on policy strategy without rate votes. Gundlach endorsed reducing the total number of rate-setting meetings to six, arguing it allows more time for data to accumulate. This commentary highlights ongoing market expectations for Fed policy and inflation outlook, factors directly influencing interest rates and investment decisions.

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Our take

Opinion from the Newsstocks AI desk, not investment advice

We think Gundlach's comments highlight tension between current Fed policy and market indicators showing inflation pressures. The Fed's choice to pause contrasts with high Treasury yields and commodity prices suggesting tighter policy may be needed. The upcoming December meeting will be critical in confirming if the Fed shifts course based on inflation progress and economic data.

Key numbers

Fed overnight rate: 3.75%-4%
2-year Treasury yield: 4.7%
Probability of December rate hike: 85%
Oil price: above $100 per barrel

What could help

Strong macroeconomic data may justify further rate increases to control inflation.

What could hurt

Rising commodity prices like oil can fuel inflation, complicating Fed decisions.

What to watch next

The Federal Reserve's December meeting where a 25 basis point rate hike is widely expected.

The background

Central banks set interest rates to control inflation and support economic growth. Rate hikes usually increase borrowing costs to slow inflation.

Questions readers ask

Why does Jeff Gundlach think the Federal Reserve should raise rates?

Gundlach believes the Fed is behind the curve because the overnight rate of 3.75%-4% is below the 2-year Treasury yield of 4.7%, and he expects headline CPI to approach 4%, warranting further hikes.

What is the probability of a Fed rate hike in December according to the article?

According to CME's FedWatch tool mentioned in the article, there is an 85% chance the Fed will raise interest rates by 25 basis points in December.

What changes to Fed meetings did Chairman Kevin Warsh announce?

Warsh said that one meeting in 2027 and two in 2028 will focus on policy strategy without a rate vote, and Gundlach favors reducing rate-setting meetings to six annually.