Jeffrey Gundlach: It's Obvious That The World Is Dealing With Deflationary Situation

With the American economy in robust health, the probability of Fed going ahead with its plans of starting to raise interest rates in summers is quite high. However, Jeffrey Gundlach from Doubleline Capital feels that would be a bad idea at this juncture when the world is facing a deflationary pressure. He was recently on CNBC to discuss his views.

“I think it’s obvious that the world is dealing with a deflationary situation,” Gundlach said. “If you look at breakevens in the TIPS versus nominal market across the globe really, if you look at yield curves which flattened across the globe during 2014 and you look at the price stats - the Internet=based transactions of prices daily, its 0 year over year. If you look at dollar strengthening that’s deflationary, if you look at commodity prices collapsing really to multi-year lows, you wonder what they [the Fed] are thinking about raising interest rates.”

He continued, “They say something contradictory, this is part of the gibberish, they say their mandate is stable prices, but they define stable as rising 2 percent per year, which last time I checked was not the definition of stable. But anyway, their goal is 2 percent a year. You haven’t been at 2 percent a year in like forever and it’s going the other way.

"So, what is the logic for raising short-term interest rates? I think the logic is that they don’t like having no tools. So, they want to lift the economy when it’s over, if you are at zero at that time, you are in a very bad situation.”