Doubleline's Gundlach: Fed should not raise interest rates

Gundlach: Fed should not raise rates
Gundlach: Fed hike probably strengthens dollar
Gundlach: Junk bond prices leading indicators

The Fed should wait to raise interest rates to avoid spooking markets, Doubleline Capital's Jeffrey Gundlach said Thursday in advance of the central bank's decision.

"The Fed would surprise the market in a way it hasn't in a very long time," he told CNBC's "Fast Money: Halftime Report."

"I think the Fed is not going to raise interest rates today."

Jeffrey Gundlach
Gundlach at Delivering Alpha: Fed's not hiking

The Federal Reserve is to announce its decision at 2 p.m. EDT. If it decides to hike, it would be the first such increase in nearly a decade. Based on sentiment priced into futures, Gundlach said a rate boost would blindside markets.

Currently, the CME Group's FedWatch tool implies about a 25 percent probability the central bank will hike.

"The Fed can try to reassure markets, but I'm suspicious that the markets will be sort of walking on egg shells about the Fed if they raise rates today," he added.

Gundlach said he will closely watch the junk bond market after the Fed's statement, in expectation that a rate hike would hurt the sector.

Gundlach said a hike also would likely send the dollar higher, which bodes badly for the U.S. economy.

"A strong dollar just isn't a good thing for the United States economy," Gundlach said.

However, if the central bank maintains its near-zero interest rate policy, it would likely spark a rally in stocks, at least in the short-term, Gundlach added.

"I'd think that you'll see a powerful move upward if the Fed stays on hold," he said.

Gundlach noted, though, that a climb would likely fade as uncertainty about the Fed sets in again in coming months.