Jeffrey Gundlach issued a stark warning about the potential for a recession and the collapse of businesses as persistent inflation and sustained high interest rates exert their impact.
Speaking with Fox Business, the billionaire investor projected a significant downturn, which could materialize this year or the next. He noted recent data, describing it as "quite concerning," with the majority of economic sectors showing declines and others expanding at a slower pace.
As the founder and CEO of DoubleLine Capital, Gundlach emphasized the strain inflicted by inflation—which soared above 9% in 2022 and remains significantly higher than the Federal Reserve's target of 2%—coupled with interest rates that have risen sharply from near zero to over 5%.
Consumers are grappling with escalating costs for essentials like food, gas, and housing, alongside growing interest burdens on car loans, credit cards, mortgages, and other forms of debt. "All of these necessary expenditures have surged, notably car and homeowners' insurance," Gundlach remarked. He highlighted the cumulative financial pressure as "credit card bills really start to pile up."
He predicted that persistently high interest rates would lead to the downfall of some businesses and negatively affect the broader economy. "A scenario of 'higher for longer' interest rates is likely to precipitate a recession," Gundlach stated. He explained that while major corporations like Tesla might face challenges, they are unlikely to falter due to interest rates alone. Instead, it's the smaller and medium-sized enterprises that will suffer most, as their cash reserves deplete under the burden of borrowing costs—potentially rising to 10% from previous averages of 4%.
Despite the dim outlook, Gundlach acknowledged the possibility of two Federal Reserve rate cuts this year, prompted by softening economic indicators. However, he remains skeptical that this would avert a broader economic crisis.
The seasoned fund manager has consistently warned of a looming recession for over two years. He had earlier predicted a downturn by the first half of this year, a forecast that now seems less likely. Nevertheless, Gundlach continues to be among several experts who are observing troubling signs of vulnerability within the economy.
