Jeffrey Gundlach, CEO of DoubleLine Capital and renowned as the "New Bond King," suggests that if the Republicans secure control of the House, it could lead to significant increases in interest rates. This scenario would allow President-elect Trump to have greater freedom in budgetary decisions, potentially increasing government spending.
Gundlach, a prominent figure in the fixed income investment sector, manages assets worth over $96 billion. He believes that increased government expenditure could necessitate more funds through government bond issuance, thereby exerting upward pressure on bond yields.
In a recent interview, Gundlach highlighted that a Republican-controlled House might result in more debt and higher long-term interest rates, sparking curiosity about the Federal Reserve's response to such developments.
As of the latest updates, while Republicans have secured a majority in the Senate, control over the House remains undecided. The Federal Reserve recently cut interest rates by 25 basis points, with traders anticipating another rate cut in December and several more by 2025.
Gundlach, alongside other well-known investors, continues to voice concerns about the daunting fiscal situation. The U.S. government's budget deficit exceeded $1.8 trillion in the 2024 fiscal year, with over $1.1 trillion allocated specifically for servicing the $36 trillion debt.
Gundlach also commented on Trump's economic policies, noting that Trump's proposed tax cuts could amplify cyclical economic stimulus. Gundlach believes these factors could increase pressure on interest rates, particularly affecting long-term bonds. The election outcome, according to Gundlach, is crucial for the economic landscape.
Should the Trump administration extend the 2017 tax cuts or introduce new ones, it could significantly swell the U.S. debt, exacerbating the already challenging fiscal situation.
Despite these concerns, Gundlach, who had previously forecasted a potential economic recession, emphasized that Trump's administration might reduce the likelihood of a recession. He remarked that Trump's clear policies over the past few months have lowered the short-term risk of a recession.
