A Billionaire bond fund manager fears the manufacturing sector is flashing signs that inflation will be more than just transitory. Inventories remain at a very, very low level, Gundlach, CEO and Chief Investment Officer of Los Angeles-based DoubleLine Capital, which has $137 billion in assets under management, said in a conference call Tuesday evening. This is not supportive of inflation being transitory. Gundlach reached out to FOX Business for further explanation but didn't receive a response.
The Institute for Supply Management s customer inventories reading rose to 30.2 points in August to 5.2 points. ISM commented the reading was too high, which is a positive for future production. Customer inventories plunged to an all-time low earlier this year as lockdowns aimed at slowing the spread of COVID - 19 shuttered factories, resulting in materials shortages and supply chain disruptions. Industries ranging from semiconductor chips to lumber and diapers have been impacted by the shortages.
Low customer inventories, especially during periods of elevated inflation, lead to even higher prices because retailers have to pay more for their merchandise. Those higher prices are then passed along to customers.
Consumers are already dealing with the highest inflation in 13 years. The consumer price index in August rose 5.3% annually, slowing from the fastest pace since 2008.
Furthermore, core personal consumption expenditures PCE the Federal Reserve's preferred inflation measure rose in July to 3,63%, the highest on an annual basis in 30 years. Core PCE has held above the Fed s long-poster for five straight months, the longest stretch since the seven months from March 2018 to September 2018.
In August 2020 the central bank tweaked its policy, saying it would allow inflation to run for some time by adding more inflation to help them meet their goal of full employment.
However, Resurgent inflation has begun to make Fed members uneasy.
Chairman Jerome Powell admitted in his Jackson Hole symposium speech that inflation at these levels is a cause for concern. Powell also stated that should the economy evolve as expected, many Fed members, including him, think it would be appropriate for the central bank to start tapering its asset purchases later this year.
Still, he warned that scaling back those purchases would not be a direct signal regarding the timing of interest-rate liftoff. Futures traders trading on 30 day Federal Fund Futures at the Chicago Mercantile Exchange are pricing in the first interest rate hike to occur in January 2023.
Gundlach said the history books don't say inflation was transitory. The Fed seems to believe transitory means perhaps nine months and we're coming close to the end of those nine months.