DoubleLine’s Jeffrey Sherman on Bank Turmoil, Fed Rate Hiking and the Reversal of QT
Although he expects the Federal Reserve, absent further mayhem in the financial system, to raise the federal funds rate a quarter point on March 22, 2023, DoubleLine’s Jeffrey Sherman on Friday March 17 tells Bloomberg Television the Fed should pause.
As evidence that the Fed’s rate hiking campaign is already impacting the economy, DoubleLine’s Deputy Chief Investment Officer points to the collapse of two regional banks in the U.S. “The old saying is that the Fed hikes until they break something,” Mr. Sherman tells Bloomberg’s Katie Greifeld. “I think it’s obvious that something broke here.”
Turmoil in the banking system, Mr. Sherman notes, “is going to cause the price of credit to go up …. And that’s inherently disinflationary.” He also says that the Fed has means other than rate hikes to attest to its inflation-fighting determination, including rhetoric from Fed officials themselves.
Notwithstanding a Federal Reserve apparently committed to raising the fed funds, Mr. Sherman points out the Fed’s creation of the Bank Term Funding Program, which offers loans to banks and other depository institutions, is inflationary. “We’ve seen essentially a reversal of QT (quantitative tightening) with the increase of the balance sheet here,” Mr. Sherman says. “They’ve erased the last four months of QT in the course of the week.”
As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
