Jeffrey Gundlach sees ‘recessionary pressure’ building with inflation

Jeffrey Gundlach said “recessionary pressure is building” in the U.S.

Jeffrey Gundlach said “recessionary pressure is building” in the U.S.

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(Jan 12): Jeffrey Gundlach said “recessionary pressure is building” in the U.S. economy with persistent inflation spurring Federal Reserve Chairman Jerome Powell to roll back easy-money policies.

The Fed “seems pretty far behind the curve when you consider wage growth,” the billionaire money manager of the DoubleLine Total Return Bond Fund said Tuesday during a webcast. “We’re going to be more on recession watch than we have been.”

He added that the central bank may only be able to boost the policy rate to just 1.5% before it inflicts economic pain. It’s currently near zero, with a number of forecasters -- including Goldman Sachs Group Inc. -- anticipating that hikes will eclipse the 2% mark.

Gundlach, 62, said he was right to predict high inflation, that it might have topped 7% in 2021 and that it could “peak out” in the first half of this year.

Consumer sentiment has worsened and bond yields “are no longer sending a don’t worry, be happy signal,” he said. The market is starting to flash signs of a “weaker economy ahead,” he said, while stopping short of predicting that a recession is imminent.

Other takeaways from Gundlach’s remarks:

  • Gains in entry-level wages could push wages higher overall, and he cited JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon’s observation that there is huge pressure on the U.S. labor market

  • Home prices are still “going up a lot” and mortgage financing can still appear cheap, Gundlach said

  • Gundlach expects European markets to outperform if the U.S. market corrects. For value buyers, “the message is clear,” he said