Jeffrey Gundlach, CEO of DoubleLine and a leading voice in the bond market, is sounding the alarm that the Federal Reserve’s anticipated rate cut is too little, too late. Gundlach argues that the U.S. economy has already slipped into recession, as evidenced by rising job losses and weakening economic indicators.
The market is widely expecting the Fed to lower the federal funds rate by 50 basis points during its upcoming policy meeting on Wednesday. If this happens, it would be the first rate cut in more than four years, signaling a shift away from the high-rate environment that’s been aimed at cooling inflation. The Fed's goal now is to alleviate some of the pressure on the labor market and prevent further economic slowdown.
However, Gundlach warns that this move is delayed. During a conference panel earlier this week, he emphasized that the economy is already struggling and pointed specifically to a deteriorating job market as a key indicator.
“We are in a recession already,” Gundlach said, according to Bloomberg. “There are a staggering number of layoff announcements.”
Data backs up Gundlach’s concerns. Over the past year, the pace of hiring has steadily decelerated. At the same time, layoff announcements surged 193% in the last month, according to a report from the consultancy Challenger, Gray & Christmas. The report also indicated that hiring plans for the rest of the year have dropped to record lows, showing a 41% decline in August compared to the previous year.
Despite these worrying signals, many market analysts maintain that the U.S. economy is not in dire straits just yet. GDP grew by 3% in the most recent quarter, and while hiring has slowed, unemployment remains near historically low levels, standing at 4.2% in August. This has led some experts to argue that the economy is still resilient, despite challenges in certain sectors.
But for Gundlach, the Fed’s actions over the last several years have exacerbated the problem. He sharply criticized the central bank, saying he would give the Fed an “F” for its overall performance during this tightening cycle. He believes they waited far too long to respond to inflation, resulting in an overly aggressive rate hike schedule—525 basis points in total across 2022 and 2023.
"They should have acted sooner,” Gundlach said. “If they had moved earlier, we wouldn’t be in a position where rates were kept too high for too long.”
With the market now bracing for the Fed’s upcoming decision, investors are keenly focused on the central bank’s next steps. While the expected 50-basis point rate cut might provide some relief, Gundlach argues that the Fed is still playing catch-up.
“I think they’ll cut 50, but they’re out of touch,” he said. “The Fed is behind the curve, and they need to get their act together.”
Jerome Powell, the Fed chair, is set to speak on Wednesday following the rate announcement. His remarks are highly anticipated, as investors and advisors alike will be looking for insights into the Fed’s future plans for additional cuts and the central bank’s outlook on the economy and labor market. Given the mixed signals from recent economic data, Powell’s comments could provide crucial guidance on how the Fed plans to navigate the challenging economic landscape ahead.
For wealth advisors and RIAs, this is a pivotal moment. With recession fears growing, now is the time to reassess portfolio strategies. Fixed-income investments could become more attractive in a lower-rate environment, but the volatility in equity markets tied to recession concerns means careful planning is essential. Advisors should also pay close attention to employment trends, as a weakening labor market could have broader implications for consumer spending and corporate earnings, both of which are key drivers of market performance.
In this uncertain climate, Gundlach’s warnings serve as a reminder to wealth managers that the macroeconomic environment is fluid, and proactive measures are critical. While the Fed’s next steps will offer some clarity, the broader context suggests that advisors need to be prepared for both short-term volatility and long-term adjustments as the economic landscape evolves.
Looking ahead, Gundlach’s perspective adds another layer of caution to an already complex economic narrative. For advisors, the key takeaway is that flexibility and foresight are paramount in helping clients navigate what could be a challenging year ahead. The possibility of a deeper recession, combined with uncertainty around future Fed actions, underscores the need for dynamic asset allocation strategies that can weather both rate cuts and market turbulence.
Ultimately, the coming months will test both the Fed’s ability to manage the economy and advisors’ capacity to steer clients through what could be prolonged uncertainty. Wealth managers should keep a close eye on the Fed’s policy direction while continuing to monitor recession indicators like job losses, GDP growth, and inflation trends.
