Jeffrey Gundlach, founder of DoubleTree, shared his insights on the U.S. economic outlook and Federal Reserve's monetary policy on CNBC's "Closing Bell" Wednesday. The bond guru warned of a looming U.S. recession in 2024, despite his forecast of a declining Consumer Price Index (CPI) inflation.
In light of the ongoing deflation, Gundlach indicated that the Federal Reserve might have the flexibility to consider rate reductions. He underscored that the central bank has left room for future actions and anticipates a less aggressive stance in the central bank's dot plot if inflation continues its downward trend.
Following Jerome Powell's press conference today, the SPDR S&P 500 Trust ETF (SGX:SPY) rose by over 1%. Gundlach interpreted Powell's cautious approach as dovish, sparking a bond rally after a significant sell-off. He affirmed that the likelihood of a U.S. recession is substantial, but in such an event, interest rates should drop.
Gundlach also expressed concerns about an impending recession leading to a potential rate cut in 2024. The Federal Reserve has maintained the federal funds rate at 5.25%-5.5% after a series of 11 rate hikes. Indicators of an economic slowdown, such as rising unemployment and a persistent inversion of the 2-year and 10-year Treasury yields, support his prediction.
He voiced concerns about the ballooning federal deficit, now nearing $1.7 trillion, contributing to the staggering $34 trillion U.S. debt. Gundlach emphasized the urgent need for either a rate drop or deficit reduction, both of which seem unlikely given the Fed's consistent high-rate policy and ongoing wars.
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