“New-bond king” Ollarak: Inflation will reach the high-4s; there’s no chance the FED will cut rates

DoubleLine Capital CEO Jeffrey Gundlach, who is known as the “king of new bonds,” confirmed on May 18 on Fox News’ “Sunday Morning Futures” that investors will not see a rate cut at the FED’s next policy meeting; DoubleLine’s model shows that the leading digit of the next CPI reading will start with 4, and the impact of the Iran war pushing up oil prices will continue to drive inflation higher.

Gundlach’s Two Core Points: Confirmed Data Basis

Point 1: 2-year Treasury yields rule out rate cuts possible

Gundlach’s exact wording confirmed: “In my view, when the 2-year U.S. Treasury yield is nearly 50 bps higher than the federal funds rate, rate cuts are fundamentally impossible.” He added: “People originally expected two rate cuts this year, but the inflation market just isn’t cooperating.”

Point 2: DoubleLine model predicts next CPI will have a leading digit of 4

Gundlach confirmed: “DoubleLine’s model shows that the leading digit of the next CPI index will start with 4.” Background data: April 2026 CPI YoY is 3.8% (the fastest since May 2023), with the Iran war continuing to push oil prices higher.

Confirmed Takeaways for Stocks and Private Credit

Stocks: Gundlach said the stock market’s valuations are “very high, highly speculative, but earnings have continued to grow significantly”; he pointed out that “when the FED does nothing about the inflation problem, the stock market will keep surging,” and believes that continued upside-better-than-expected profits are fueling the current speculative frenzy.

Private credit: When asked whether he is worried, Gundlach confirmed: “Of course I’m concerned. The private credit market seems to always need new investors—maybe it’s just the greed of the sponsors, who always want to manage more and more assets.”

Commodities and Bitcoin: Gundlach said that over the past three years he has been “very, very bullish on commodities,” and noted that because net bond yields are negative, the market’s interest has shifted away somewhat from Bitcoin and other speculative assets; investors’ options are limited besides stocks.

FAQs

What does “CPI with a leading digit of 4” mean, and how does it affect FED policy?

Gundlach expects the year-over-year U.S. CPI rate reading for the next period to rise to above 4%, higher than the most recent 3.8%. If CPI breaks above 4%, the political and policy room for the FED to implement rate cuts will be further compressed—and it also implies that after Kevin Warsh takes over, he may face even more complicated monetary policy challenges.

Why is a 2-year Treasury yield higher than the federal funds rate an anti-indicator for rate cuts?

The 2-year Treasury yield typically reflects market expectations for where interest rates will go over the next two years. When it is about 50 bps higher than the current federal funds rate, the market is effectively pricing in that “rates will be kept at or rise,” not fall—completely contradicting rate-cut expectations. This is the core argument Gundlach says makes rate cuts “fundamentally impossible.”

What challenges will Kevin Warsh face when he becomes FED Chair?

Based on Gundlach’s remarks, when Kevin Warsh takes over, he faces multiple challenges: CPI could rise to above 4%, the Iran war could keep pushing oil prices higher, market rate-cut expectations could miss, and potential instability from an overvalued stock market.