Jeffrey Gundlach, chief executive of DoubleLine Capital, known as the “New Debt King”, said on Wednesday (16th) that the U.S. economy may suffer from a slowdown in raising interest rates by the Federal Reserve. will fall into recession in 2023.
Gundlach said in an interview that a recession in the U.S. is largely out of the question this year, but it could happen in 2023 because the Fed has fallen behind in pushing for a soft landing.
Gundlach also said that the Fed’s announcement of a rate hike on Wednesday was merely trailing the 2-year Treasury note and that the whole policy action was “far behind.” Given absolute interest rates and inflation levels, the yield curve is pretty flat today.
The yield curve is flattening day by day, moving in the direction of yields on short-term bonds overtaking those on long-term bonds, an inversion that usually signals a recession.
Gundlach also mentioned that U.S. stocks have fallen too far and will rise in the short term, but after several interest rate hikes, the gains will weaken. Also, while price pressures may ease, inflation will remain sticky. He believes that inflation in 2022 will be lower than the 5% rate a year ago, but not at the level of the Fed’s forecast.
Gundlach has previously said the Fed’s job is to fight inflation, but it’s been ineffective, and the current economic outlook is “far worse” than last September. “We are increasingly concerned that the economy could slip into recession,” he said.
He also criticized U.S. fiscal and monetary easing, reiterated his bearish view on the U.S. dollar, and advised investors to sell U.S. stocks and buy emerging-market stocks on the grounds that the latter are currently “very cheap” and bonds have risen too high. In addition, raw materials are seeing a retaliatory move, and he thinks it would be better to invest in a broad range of commodities than just gold.