Gundlach: 150 bps of Rate Cuts, Dangerous Geopolitics and U.S. Debt & Deficit Spirals

DoubleLine CEO and Founder Jeffrey Gundlach joins CNBC’s Scott Wapner on Fed Day, July 31, 2024. Among other topics, Mr. Gundlach shares his outlook for 150 bps of fed funds rate cuts by a year from now, his gradualistic allocation from floating to fixed rate, his expectation of recession and navigating in an America on the cusp of major change and a world of dangerous geopolitics. Highlights:

– Short rates along the Treasury curve are set to fall out to five-year yields, de-inverting the curve, an outlook that has DoubleLine incrementally paring floating-rate fixed-income assets in favor of fixed rate.

– Inflation momentum remains to the downside, supported by seasonal effects.

– “I expect the Fed is going to cut rates in line with what the market is predicting. If I had to take it under/over, I would think the Fed is going to cut more than the market thinks. I think we have 150 basis points of cuts coming, certainly by a year from now.”

– On the timing of Federal Reserve rate cuts and the 2024 election: “I think that’s so laughable that if you cut rates 25 basis points at this point that would have any impact on presidential politics.”

– Agreeing with Mr. Wapner, Jeffrey Gundlach says he is “sanguine” about the Fed’s monetary policy at the present macroeconomic juncture, and he describes a “well-prepared” Jerome H. Powell at the Fed chair’s June 31 news conference.

– Recession: “When we look back at today a couple years from now, and it will be in history when we look back at it, I kind of believe that we will say that we were in a recession in September of 2024.”

– Labor market: “Employment is a lagging indicator. Everybody knows that. But the trend in employment has already changed for the worse. And it’s masked. The government hiring is a little bit curious. If you want to make your data better, you can manipulate it by having your area of the economy do some extra hiring. And that appears to be what’s happening. Government employment was on a downtrend, flattened out, and now it’s been rising.”

– “Gold seems to be in a world of its own. I think it has a lot to do with geopolitical problems, which just seem to be getting worse. Just think of what’s happened in the last three or four weeks. We’ve had an assassination attempt, we’ve got bombings going on with Israel, Iran, (Israel’s) neighbors to the north. Don’t forget about Ukraine, which hasn’t gone away. And of course we have this presidential election nonsense going on, switching out candidates. This is a very dangerous geopolitical time.”

– On DoubleLine’s latest investor briefing on the U.S. deficit and debt spirals: The nation’s debt “interest expense as a percentage of tax receipts is at a completely unsustainable level, and the trajectory makes it very unsustainable. We’re headed to a place where we’re going to have a substantial fraction of tax receipts under our current structure go to interest expense. And it’s getting to the point where you can’t ignore it anymore.”

More on the Debt Spiral, click here for the full article.