The Fed stated in late April that it expects inflation to be “transitory,” but Jeffrey Gundlach gives that only a 60% chance of being true. If inflation is non-transitory, markets will be “severely stressed,” he said.

Gundlach spoke to investors via a webcast, which he titled “Clampdown,” and the focus was on his flagship total-return fund (DBLTX). Slides from that webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.

“Clampdown” is the British word for lockdown, and Gundlach referenced the use of this word in a classic album, London Calling, by the rock group the Clash.

DoubleLine’s proprietary model shows the next CPI reading will be in the “high fours,” Gundlach said, “with some risk in the fives.” Consumer fear of rising prices is the greatest in 40 years and has risen steadily over the last year, he said.

The trouble with the transitory narrative, according to Gundlach, is that inflation could turn into a self-fulfilling prophecy if consumers purchase goods and services now for fear of paying more in the future.

Core and headline PCE are 3.06% and 3.58%, respectively. Core CPI is at 3% on a year-over-year basis, its highest reading in about 15 years. Gundlach said it “no longer looks like it is going sideways.”

Gundlach acknowledged that a strong argument supporting the possibility of transitory inflation is the base effect from a year ago, when inflation was exceptionally low. But, he said, that is “clouded by the effects from a few months ago.” He did not elaborate on that remark, but presumably he meant that the signs of year-over-year inflation were not limited to the low CPI readings in March 2020 relative to March 2021.