Source: Global Market Report
Jeffrey Gundlach (Jeffrey Gundlach), CEO of Double Tier Capital and known as the “new debt king,” believes that interest rates will tend to fall as the US economy deteriorates further and falls into recession next year.
In an interview on Wednesday, he said, “I do think interest rates will fall as we enter recession in the first half of next year.”
Ganglak believes that if there is a recession in the first half of next year, the key interest rate may need to be reduced to 2.5% by early summer. He said, “If the economy declines as I expected, the Fed will not cut interest rates by 50 basis points, but by 200 basis points.”
The Federal Reserve agreed on Wednesday to keep the key federal funds rate within the target range of 5.25%-5.5%, which has remained at this level since July. This is the second time in a row that the Federal Reserve chose to keep interest rates unchanged. Previously, the Fed had raised interest rates 11 times in a row, including 4 in 2023.
Gunlak pointed out some signs of the US economic slowdown. First, the unemployment rate, although still low, is on the rise. Second, the key interest spread between 2-year and 10-year treasury bond yields has been inverted for over a year and has recently begun to steep. Ganglak said this is a sign of recession. Furthermore, he saw the initial wave of layoffs.
Gunlak said, “I really believe layoffs are coming soon. We've seen hiring freezes, and now we're starting to see layoffs... Financial firms and tech companies are laying off employees, and I'm sure this situation will spread.”
Gunlak also warned about the growing federal deficit. At the end of the previous fiscal year in September, the federal deficit surged to nearly $1.7 trillion. The budget gap has made America's astonishing total debt worse. Currently, America's total debt is close to 34 trillion US dollars.
Gunlak said, “One thing the market will have to face is that we can no longer maintain such interest rates and deficits. At the current level of interest rates, we cannot afford this government. This is totally unsustainable.”
Billionaire investor Stanley Druckenmiller (Stanley Druckenmiller) expressed similar concerns about government spending earlier on Wednesday. He said that the US has chosen not to issue bonds at lower long-term interest rates in the past few years, which will eventually lead to difficult choices in the future, such as cutting social security and other welfare programs.
As for the Fed's next move, Gunlak said that the bank will not be as aggressive as the current bitmap signals. The current bitmap suggests that it will raise interest rates once again this year.
Federal Reserve Chairman Powell said on Wednesday that the interest rate setting committee has not yet begun to consider cutting interest rates, and will not consider cutting interest rates until inflation is brought under control.
Editor/Jeffrey