Unwinding Fed's balance sheet could hurt stocks: Jeffrey Gundlach

By Nick Giampia
Published October 13, 2017
FOXBusiness

DoubleLine Capital CEO Jeffrey Gundlach on Friday said he expects the Federal Reserve to raise interest rates in December and discussed how the Fed’s plan to taper its balance sheet may be a problem for the stock market.

“You can divine a probability that the bond market thinks that the Fed is going to raise rates and the Fed never raises rates when that probability is less than 70% and they basically, always raise them when it’s above 70%,” he told FOX Business’ Maria Bartiromo on “Wall Street Week.”

After the housing market crash in 2008, the Fed begin using quantitative easing, in order to help stimulate the economy, by buying trillions of dollars’ worth of mortgaged-backed securities from member banks.

On Friday, the Fed announced its plan to begin to unwind its $4.5 trillion balance sheet by implementing a purchase schedule for a $4 billion per month roll off in the central bank’s holdings.

Gundlach said the balance sheet roll off could negatively impact the stock market.

“You can make the argument that the stock market has been propelled pretty nicely and the global stock markets too by quantitative easing. One might have to think that maybe if that’s taken away or reduced, it reduces some of that support and the Fed is now letting some of these bonds roll off,” he said.