Jeffrey Gundlach delivered a speech at the 24th Annual Sohn Investment Conference in New York on May 6, 2019.
Adam Jeffery | CNBC
DoubleLine Capital CEO Jeffrey Gundlach said on Thursday that interest rates could soar if Republicans ultimately take control of the House of Representatives, securing a third consecutive victory in office and giving President-elect Trump free rein on spending.
Gundlach is a well-known fixed income investor whose firm manages more than $96 billion.
“If the House is controlled by Republicans, there’s going to be a lot of debt, interest rates are going to be higher in the long term, and it’s going to be interesting to see how the Fed responds to that,” Gundlach told CNBC during the closing bell.
The battle for control of the House of Representatives was undecided as of Thursday after Republicans won a new Senate majority. The Federal Reserve cut interest rates on Thursday, and traders expect the Fed to cut interest rates again in December and again in 2025.
Prominent investors like Gundlach have been expressing concerns about the challenging financial situation. Fiscal year 2024 has just ended, and the government budget deficit exceeded US$1.8 trillion, of which more than US$1.1 trillion was earmarked to pay the financing costs of US$36 trillion in US debt.
“Trump said he was going to cut taxes…he’s very supportive of cyclical stimulus,” Gundlach said. “So, in my view, there’s going to be some pressure on interest rates, especially over the longer term. I think the outcome of this election is very, very important.”
If the Trump administration extends the 2017 tax cuts or introduces new tax cuts, it could significantly increase the national debt in the coming years and further worsen an already troubled fiscal situation.
Still, Gundlach, who has called for a U.S. recession, said Trump’s presidency makes such a recession less likely.
“I do think, and rightly so, that a Trump victory would significantly reduce the likelihood of a near-term recession,” Gundlach said. “Certainly, when Mr. Trump has used plain English over the past three months to promote this kind of agenda “The probability of a recession will decrease.”
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