Investors should brace for another interest-rate increase by the Federal Reserve, with the recent surge in oil prices likely to rekindle inflation pressures, billionaire investor Jeff Gundlach said.
“I think the probability of rate hikes is higher than what I thought before this oil spike happened,” Gundlach told CNBC. “The oil spike is really going to be problematic,” he added.
“We already know that the base effects, the roll-off of the CPI, is going to lead to very likely inflation going back up to … maybe even going to a four handle on headline CPI before it comes down with that shelter component effect,” the DoubleLine CEO said, referring to core inflation rising above 4%.
“So I think the chance of a rate hike is higher because these oil prices are going to be a real problem,” Gundlach said.
Global oil prices are on track for a fourth straight monthly gain, with the international benchmark Brent crude rising past $90 a barrel to a 10-month high. US West Texas Intermediate has also surged nearly 30% since July.
The spike comes in response to supply cuts by the world’s biggest oil producers, including Saudi Arabia and Russia, as they look to maintain price stability. Meanwhile, a resilient US economy has also been fueling demand for crude.
Surging oil prices now threaten to spark a resurgence of US inflation, which the Fed has tried so hard to quell. The annual rate of consumer-price increases eased to 3.7% in August, from highs above 9% last year, after the Fed raised benchmark rates by more than 500 basis points since early 2022.
On Wednesday, the central kept interest rates unchanged at 5.25%-5.5%. While Gundlach anticipates a hike at the Fed’s next meeting, he added that the monetary authority is likely to ease policy in the first half of 2024.
“I think it’s quite likely there’s going to be rate cuts in the first half of next year. And I think they’re going to be bigger than the Fed thinks, as their base case,” Gundlach said.