"New Bond King" Gundlach interprets Powell's "debut": Hawkish stance gambles on reputation, long-term US bonds have strongest bullish reason

DoubleLine Capital CEO Jeffrey Gundlach, who is known as the "new bond king," stated that the tone of the new Federal Reserve chairman Powell is more hawkish than many investors had expected. This shows his commitment to restoring price stability and suggests a reduced interest in loose monetary policy. Gundlachs interpretation: Powell bets on personal reputation, long-term US Treasury bonds welcome buying window After the Federal Reserve decision was announced, Gundlach made a clear and direct market analysis. Firstly, Powell is not a "dovish" chairman. Gundlach pointed out that the market had generally expected Powell, who was personally nominated by Trump, to lean towards dovishness - after all, former chairman Powell was fiercely criticized by Trump for maintaining high interest rates. However, Powell's language on inflation issues is much stronger than what investors and economists had expected. Powell repeatedly emphasized at the press conference that the Federal Reserve is committed to lowering the inflation rate to 2% - a level that has not been seen in five and a half years, to his regret. "Our determination to fulfill commitments is firm, consistent, and clear," Powell said, "I believe this is an important message that we have not been able to convey over the past five years, and we will make up for this shortcoming." As a key figure appointed by President Trump to lead the Federal Reserve, Powell's toughness after taking office exceeded the models predictions of most economists. After taking office, Powell did not immediately succumb to political pressure to move towards "low-interest rate" stimulus, instead reshaping the central bank in a more disruptive way: Powell refused to submit personal rate forecasts in the highly anticipated dot plot, expressing extreme distrust of the traditional "forward guidance." With institutional reshuffling, he is beginning a more comprehensive systemic review of the Fed's communication framework and data reliance. Secondly, Powell has bet his reputation on controlling inflation. Gundlach stated that Powell has actually bet his own reputation on controlling inflation, thereby reducing the possibility of a substantial rate cut. "So he must push the inflation rate down," Gundlach said, "We don't have to worry about excessively loose rates, as excessive loose rates would bring pressure to long-term bonds." The US May CPI rose by 4.2% on a year-on-year basis, reaching a three-year high; the April PCE price index rose by 3.8% year-on-year. Inflation has been above the Federal Reserve's 2% target level for more than five years. Powell admitted at the press conference that the high inflation is due to supply shocks. However, the challenges facing the Federal Reserve do not only come from traditional economic cycles. Nick Timiraos, the Feds voice, pointed out that a series of supply shocks from the Covid-19 pandemic, the Russia-Ukraine conflict, trade tariffs, and the latest Middle East war have weakened the Fed's confidence in inflation returning to the 2% target. At the same time, the AI investment boom is becoming a new variable affecting the economy. The continuous expansion of large-scale data center construction, power infrastructure, and related capital expenditures are injecting significant funds into the US economy, and the wealth effect of the continuous rise in technology stocks is further driving consumer spending. James Egelhof, chief economist at BNP Paribas USA, stated: "In the long run, the logic of AI lowering costs may be valid, but monetary policy makers must face current problems, not those of the 2030s." He expects that the Fed may start raising rates as early as December this year. Thirdly, the reasons for buying long-term US Treasury bonds are more compelling. Gundlach explicitly stated: "I believe that with the new chairman in office, the reasons for holding long-term Treasuries are more compelling. If he wants to achieve price stability and ultimately fails to fulfill his commitments, he will actually be seen as a failure today." In his view, Powell's emphasis on price stability reduces the risk of the Fed adopting excessively loose policies, enhancing the investment logic of holding long-term US government bonds. Fourthly, it is unlikely that the Fed will adjust rates before the autumn. Gundlach pointed out that, based on the current economic situation, the Fed is unlikely to adjust rates before autumn 2026. This judgment is largely consistent with the pricing of the rate futures market - CME's Fed Watch Tool shows that after the decision was released, the market priced in a 60.7% probability of a rate hike in October.