Gundlach and Load
Donald L. Luskin
Monday, September 12, 2016
Friday was a warning shot for the Fed: you’re near an invisible tripwire connected to recession.
Strategic view: 

Friday’s volatility blast was no ordinary risk-off move – both risky and riskless assets fell. The US election becoming more competitive may be a contributing and ongoing factor. But the catalyst seems to be have been Gundlach’s widely reported claim that the Fed will “blow itself up” with a September rate hike, and that we face a “big, big moment” in which “interest rates have bottomed” and inflation will come back. Such a hike would be a shock, but it would tend to lower already low inflation, lowering long-term yields and supporting asset values. But Gundlach’s claims resonate with reckless remarks like Rosengren’s that the economy risks “overheating,” when so much recent data has been alarmingly weak – and with the ECB’s failure to increase stimulus suggesting that central banks have given up. Friday sent a warning to Yellen – so if a September hike wasn’t off the table before, it is now.