DoubleLine Capital founder and CEO Jeffrey Gundlach said Monday that the Federal Reserve should not hike rates at its December meeting later this week.
"I think they shouldn't raise them this week. The bond market is basically saying, 'Fed you've got no way you should be raising interest rates.' Look at the twos, threes, five-year part of the yield curve, which are flat at 2.7 percent," Gundlach told CNBC's Scott Wapner in Los Angeles. "The problem though isn't that the Fed shouldn't be raising rates. The problem is that the Fed shouldn't have kept them so low for so long."
The Federal Open Market Committee — the Fed's policymaking arm — is expected to hike its benchmark overnight lending rate for a fourth and final time of 2018 on Wednesday. While fears of rising interest rates and an ambitious Fed have spooked markets throughout 2018, such concerns have evolved over the past month as inflation and growth expectations recede.
The so-called yield curve remains partially inverted, with the yield on benchmark 2-year Treasury notes exceeding the rate on 5-year notes. The recent fall in interest rates, as well as marked flattening in the yield curve, has pushed bank stocks lower, with the SDPR S&P Bank ETF down more than 20 percent in the past six months.
"The problem is that we shouldn't have had negative interest rates like we still have in Europe. We shouldn't have done quantitative easing, which is a circular financing scheme," he added. "The problem really is the deficit. The Fed is kind of helpless here. The fact that the deficit is so out of control this late in the economic cycle: We have never before had the Fed raise interest rates while the budget deficit was expanding."
Gundlach, a respected prognosticator across Wall Street, said in his webcast last week that it looks like the U.S. stock market is "going to break down" amid a rising deficit, signs of an economic slowdown and an ambitious Federal Reserve. The central bank has already hiked the federal funds rate three times this year.
Gundlach noted that consumer confidence readings lately versus economists' expectations are falling short by a magnitude and consistency last seen prior to the recession in 2007. This continued disappointment could be a sign of economic weakness ahead.
Gundlach said he agreed with President Donald Trump's Monday criticism of the Fed's rate hiking path. The president lambasted the central bank for "even considering" another rate hike just days before its final meeting of the year.
"Usually the budget deficit expands in response to a recession. It's a way of stimulating to get us out of recession," Gundlach said. "But instead, we did it as a last gasp of keeping this economic recovery going."
Gundlach made several bold calls on the financial markets this year which came true, including a decline in the S&P 500 after the 10-year yield hits 3 percent, Facebook's bear market and bitcoin's price cratering. DoubleLine's assets under management totaled more than $120 billion as of June 30.