Geondeullak "US, Early Next Year Recession... Interest Rate Drops to 2.5%"

'Bond King' Jeffrey Gundlach, CEO of DoubleLine Capital
Predicts Interest Rate Cut in Early Next Year

Jeffrey Gundlach, CEO of DoubleLine Capital, known as the "Bond King," predicted that the U.S. economy will enter a recession early next year, leading to a decline in interest rates. Although Jerome Powell, Chair of the U.S. Federal Reserve (Fed), held the benchmark interest rate steady for the second consecutive time and dismissed the possibility of a rate cut, Gundlach foresees that the pivot point (a shift in monetary policy direction) due to the downturn is approaching.

On the 1st (local time), Gundlach appeared on CNBC's flagship program "Closing Bell" and said, "The concept of 'prolonged high interest rates' carries very dark vulnerabilities," predicting that interest rates will fall early next year.

He explained, "The warning of prolonged high interest rates has affected the bond market over the past 6 to 8 weeks, and interest costs have started to rush into households very quickly," adding, "One problem the market faces is that we can no longer afford these interest rates and fiscal deficits."

Gundlach drew more attention by raising the possibility of a rate cut early next year after Powell firmly stated that the Fed is "not discussing" rate cuts. Powell, immediately after the Federal Open Market Committee (FOMC) regular meeting held the benchmark rate steady at 5.25?5.5%, said, "A pause in rate hikes does not mean it will be difficult to raise rates again," leaving the door open for further tightening. However, Gundlach places more weight on the forecast that the U.S. economy will cool rapidly early next year.

He cited the unemployment rate, the inversion of short- and long-term interest rates, and layoffs as signs of economic slowdown. First, he noted that although the U.S. unemployment rate remains low, it is on an upward trend. He also interpreted the inversion of the yield curve?where the 2-year U.S. Treasury yield surpasses the 10-year yield?for over a year as a signal of recession. Generally, bonds with shorter maturities have lower yields than those with longer maturities; when the opposite occurs, it is considered a precursor to a downturn. Gundlach also mentioned that a wave of layoffs is beginning.

He said, "I truly believe layoffs are coming. We have seen employment freeze, and now we will start to see layoff announcements. Layoffs will continue in financial and tech companies, and this will spread broadly."

He also pointed to the U.S. federal government's fiscal deficit, which ballooned to $1.7 trillion in the fiscal year ending in late September, as a cause for concern. Gundlach stated, "We can no longer afford to operate this government at today's interest rate levels," calling it "completely unsustainable."

He predicted that the Fed will need to lower the benchmark interest rate to 2.5% by early summer next year. Gundlach forecasted, "If the economy collapses as I expect, the Fed will cut rates by 200 basis points (1bp = 0.01 percentage points), not just 50bp."

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