Sudden shift in the wind! The new bond king: The Fed’s next move may be to raise interest rates

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The expectation for Fed rate cuts is rapidly collapsing, and the new bond king believes the next move might be a rate hike.

On Thursday, March 19, DoubleLine Capital CEO Jeffrey Gundlach, known in the market as the "new bond king," posted on social media, pointing out that the two-year US Treasury yield suggests the Fed could see a rate hike. He noted:

The two-year US Treasury yield has risen by 50 basis points in less than three weeks, with current trends implying the possibility of a Fed rate hike.

On the same day Gundlach made this statement, Wall Street had basically ruled out the possibility of Fed rate cuts in 2026.

(The expected Fed rate cut this year is almost zero)

Energy Shock Rekindles Inflation Fears

The trigger for this shift in expectations is the sharp rise in global energy prices caused by geopolitical conflict.

Before the outbreak of war, markets generally anticipated at least two Fed rate cuts in 2026. As energy prices soared and the inflation outlook became more complex, these expectations have been completely repriced.

Early Thursday, the two-year Treasury yield, highly sensitive to policy trends, climbed to a seven-month high. It later retreated but still rose over 40 basis points in three weeks.

(Since the US-Iran conflict, the two-year Treasury yield has risen more than 50 basis points)

Wallstreetcn cited that this week, the Fed decided to keep its benchmark interest rate unchanged at 3.50% to 3.75%. The latest policy statement still maintains a median forecast of one rate cut in 2026.

But notably, current hawkish market expectations already exceed the level implied by official Fed guidance, with the futures market implying about a 6% probability of a rate hike.

This means that some traders believe if inflationary pressures persist, the Fed may not only hold its ground but could even restart tightening. Gundlach's warning further reinforces this tail risk narrative, making fixed income market sentiment more cautious.

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