DoubleLine Capital's Deputy Chief Investment Officer Jeffrey Sherman stated that Federal Reserve policymakers should avoid an aggressive reaction to the new wave of inflation driven by oil prices and instead keep monetary policy focused on the already weak labor market conditions. Sherman emphasized that the shock from sharply rising international oil prices effectively acts as a form of monetary tightening, making additional Fed intervention potentially unnecessary.
Goldman Sachs strategist Dominic Wilson recently expressed a similar view in a research report, noting that markets are overreacting to the oil shock by betting on Fed tightening—a scenario that historically has not materialized. The firm cited 1990 as a key example, when bond yields surged amid an oil supply shock and investors anticipated Fed tightening, but the central bank ultimately cut rates as economic conditions deteriorated.
Iran's military has effectively imposed a "quasi-blockade" on the Strait of Hormuz, disrupting roughly 20% of global energy flows, alongside attacks on tankers and shipping interruptions. According to a recent International Energy Agency study, U.S. and Israeli military actions against Iran in late February triggered the largest oil supply disruption in global market history. Meanwhile, the U.S. government is considering military options, including potential ground or quasi-ground control of Kharg Island, to reopen shipping lanes and secure the Strait of Hormuz.
DoubleLine Capital is a major fixed-income asset manager on Wall Street, though not on the scale of giants like BlackRock or PIMCO. As of September 30, 2025, the firm managed approximately $95 billion in assets. Founded by Jeffrey Gundlach, often referred to as the "New Bond King," DoubleLine quickly grew into one of the most watched fixed-income investment firms globally, with its latest strategy views carrying significant influence relative to its size.
Brent crude has stabilized near $110 per barrel, indicating that high oil prices may pose a persistent threat rather than a temporary spike. Since the outbreak of conflict in the Middle East on February 28, Brent has surged over 50%. Even as former President Trump emphasized positive negotiations with Iran and expressed willingness to end the war without reopening the Strait of Hormuz, Brent remains near historic highs, with market focus centered on whether the conflict will prolong rather than on daily negotiation headlines.
The OECD recently raised its inflation forecasts for major global economies, now projecting average inflation in the G20 to rise significantly to 4% this year. For the U.S., the OECD expects inflation to jump from 2.6% last year to around 4.2%—a 1.2 percentage point increase from its December forecast. Broader factors include energy price reflation due to ongoing geopolitical tensions, tight labor markets, slower net migration, and tariff policies from 2025 continuing to exert upward price pressure in the first half of this year.
Sherman explained that oil price shocks inherently act as a strong hawkish policy, effectively serving as a rate hike by themselves. Rising energy costs, he noted, exert demand-reducing pressure on the overall economy without requiring central bank action. While U.K. and European rate futures markets have priced in rate hikes in response to energy shocks, Sherman argued that the appropriate response is not to react solely based on energy prices. Instead, he urged global central bankers to refocus on assessing the economy's position within the labor market cycle.
Despite calls from Trump-appointed Fed Governor Stephen Miran for a 25-basis-point rate cut, Sherman expressed skepticism about the effectiveness of rate cuts in stimulating hiring. He questioned whether modest easing would boost U.S. companies' willingness to hire, stating that even a 100-basis-point cut would unlikely significantly alter hiring prospects.
Sherman also highlighted a concerning divergence in bond markets: despite recent Fed rate cuts, yields have not declined significantly. He attributed this to widespread fiscal concerns in developed markets, with long-term yields in the U.S., U.K., Europe, and Japan near cycle highs. This "market rejection" at the long end of the yield curve reflects worries about long-term inflation and what Sherman termed "systemic fiscal policy inconsistencies across the developed world."
Beyond immediate energy price pressures, Sherman expressed deep concern about ongoing geopolitical conflicts disrupting energy supply chains. With attacks on aluminum and liquefied natural gas facilities, he warned that merely ending hostilities would not quickly restore pre-war energy supply systems. Quoting a commodity market adage, Sherman noted, "The cure for high prices is high prices," suggesting that demand destruction may be necessary to calm oil markets.
In response, DoubleLine is increasing duration exposure in the 5- to 10-year segment of the U.S. Treasury yield curve. This strategy reflects expectations of a sharp economic slowdown driven by oil price disruptions and persistent supply chain damage, rather than betting on the long end of the curve, where fiscal concerns continue to suppress price trends.
Sherman's views align with those of Citrini Research's James van Geelen and Goldman Sachs, all advising against using rate hikes to combat energy-driven inflation. Citrini Research recently gained attention with its "2028 AI Doomsday Prediction," forecasting a dystopian AI future where soaring productivity leads to a "global economic plague" by displacing white-collar jobs. Van Geelen's team cautioned investors not to abandon expectations for Fed rate cuts, arguing that oil price spikes could deliver economic shocks strong enough to prevent the Fed from hiking. He criticized markets for drawing parallels with the 2022 Russia-Ukraine oil shock, calling it a classic recency bias error. Van Geelen emphasized that unlike 2022—when rates were near zero and CPI exceeded 5%—current interest rates are near neutral levels. If the war persists, he expects global equity declines and wealth effects to weaken the U.S. economy sufficiently that markets would no longer accept a scenario of no Fed rate cuts over the next 12 months.
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