Billionaire Investor Jeffrey Gundlach Warns the Fed Is ‘Falling Behind the Curve.’ The Bond Market Seems to Agree.

Jeffrey Gundlach, the billionaire founder and CEO of DoubleLine Capital widely known as the "New Bond King," delivered a sharp rebuke of the Federal Reserve's decision to hold interest rates steady at 3.75%–4.00% following its October 27–28 meeting. 

The DoubleLine executive argued that the central bank should be raising rates — not pausing — as persistent inflation driven by surging energy prices and broadening price pressures threatens to accelerate.

“I think the Fed should be raising interest rates, based upon the 2-year Treasury being at 4 and three-quarters percent, and now the yield curve in the wake of this news conference is steepening again,” argued Gundlach in a post-Fed appearance on CNBC’s “Closing Bell.”

The Yield Curve Tells a Hawkish Story

Gundlach specifically pointed to the two-year Treasury yield (USTY2.RT) sitting at approximately 4.75% — a full 75 basis points above the top of the Fed's target range — and a steepening yield curve as market-based evidence that monetary policy is insufficiently restrictive. He warned that oil prices (CLZ26) near $100 per barrel, when accounting for surcharges and related costs, effectively represent commodity prices equivalent to $135, and that headline CPI is poised to breach 4% in the coming months if energy prices remain elevated.

His frustration with the Fed's inaction was encapsulated in a rhetorical challenge to the central bank's wait-and-see posture, questioning why policymakers would delay when the inflation picture is deteriorating.

“What are you waiting for?” Gundlach wondered, addressing Fed Chair Kevin Warsh and his committee.

A Divided Fed Signals Internal Tension

The FOMC's decision, approved by a narrow 10–2 vote with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a 25-basis-point hike, acknowledged that inflation remains elevated and that the economy is expanding at a "strong pace." 

Fed Chair Kevin Warsh defended the pause by arguing that the September rate hike was already working its way through tighter credit conditions and that productivity gains could allow the economy to grow without stoking demand-driven inflation.

However, Warsh conceded that the Fed has not yet achieved price stability after nearly six years of missing its 2% inflation target — a stunning admission that reinforces Gundlach's criticism.

Not Everyone Is Sounding the Alarm

On the other side of the debate, BlackRock's (BLK) Rick Rieder argued that patience was warranted because further rate increases might not address the supply-driven components of inflation, likening the Fed's challenge to managing a house with one thermostat but vastly different temperatures in every room. University of Michigan economist Betsey Stevenson similarly suggested the economy was not overheating and that premature tightening could jeopardize AI-related investment.

Treasury Secretary Scott Bessent offered a middle ground, suggesting the Fed should keep an open mind about the transitory nature of energy-driven supply shocks while stopping short of labeling future hikes a policy mistake.

Bond Traders Are Voting With Gundlach

The bond market's reaction lent notable credibility to Gundlach's concerns, as the yield curve steepened during Warsh's press conference, with 10-year ($TNX) and 30-year Treasury yields ($TYX) remaining above 5%. This steepening, combined with muted short-end yield declines, suggests bond investors are not confident the Fed is doing enough to contain inflation expectations.

Market pricing reflects approximately an 80% probability of a December rate hike, per CME FedWatch, indicating that most participants view the October pause as temporary rather than a shift in policy direction.

The Ghost of "Transitory"

Gundlach's warning that the Fed risks falling behind the curve echoes the institution's own 2021 "transitory" inflation debacle, when delayed action ultimately forced historically aggressive tightening that inflicted significant economic and market pain. 

Whether December's meeting delivers the hike the bond market is pricing in — or another pause that further steepens the curve — may determine if the "New Bond King" was right once again.

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On the date of publication, Sarah Holzmann did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.