Jeffrey Gundlach speaks at the 24th Annual Sohn Investment Conference in New York on May 6, 2019.
Adam Jeffrey | CNBC
CEO of Double Line Capital Jeffrey Gundlach 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 Donald Trump free reign to spend, he said on Thursday.
Gundlach is a well-known fixed income investor whose firm manages more than $96 billion. He believes increased government spending will require more borrowing through the issuance of Treasury bonds, putting upward pressure on bond yields.
Gundlach told CNBC: “If the House is controlled by Republicans, there will be a lot of debt, interest rates will be higher in the long term, and it will be interesting to see how the Fed responds to that.”end bell“.
Battle for House control undecided As of Thursday, Republicans won a new Senate majority. The Federal Reserve cut interest rates on Thursday, and traders expect the central bank to cut rates again in December and multiple times in 2025.
Prominent investors such as Gundlach have been expressing concerns about the challenging financial situation. Fiscal year 2024 just ended and the government ran Budget deficit exceeds $1.8 trillionwhich includes more than $1.1 trillion in financing costs earmarked to pay for the $36 trillion in U.S. debt.
“Trump said he was going to cut taxes … and he’s very supportive of cyclical stimulus,” Gundlach said. “So, in my view, there’s going to be some pressure on interest rates, especially in 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 difficult fiscal situation.
Still, Gundlach, who has predicted a U.S. recession, said Trump’s presidency makes such a recession less likely.
“I do think, and rightly so, that a Trump victory will significantly reduce the likelihood of a near-term recession,” Gundlach said. “Certainly when Mr. Trump has been promoting this in plain English over the past three months, The likelihood of a recession decreases.”
