Jeffrey Gundlach, the CEO of DoubleLine Capital, has expressed his views on the potential impact of Republican control over the House on interest rates. He made his comments during an appearance on CNBC’s “Closing Bell” program.
Gundlach, whose firm manages assets worth over $96 billion, says that if the Republicans gain control of the House, it could result in increased government spending as President-elect Donald Trump would have more freedom to utilize funds. He predicts that this would necessitate additional borrowing through Treasury issuance, leading to a rise in bond yields.
He stated: “If the House goes to Republicans, we’re looking at increased debt and higher long-term interest rates. It will be intriguing to see how the Federal Reserve responds to this situation.”
The battle for control of the House remains unresolved as of Thursday, even as Republicans sealed their Senate majority. Meanwhile, the Federal Reserve has lowered rates, and market participants anticipate further reductions in December and several more in 2025.
Gundlach, along with other high-profile investors, has been vocal about the difficulties posed by the current fiscal climate. The fiscal year 2024 concluded with a staggering budget deficit of over $1.8 trillion, of which more than $1.1 trillion was spent solely on servicing the $36 trillion U.S. debt.
Gundlach added, “Trump has expressed his intention to reduce taxes and is strongly in favor of cyclical stimulus. This suggests that we could see some upward pressure on interest rates, especially long-term ones. The election results, I believe, are very consequential.”
If the Trump administration extends the 2017 tax cuts or introduces new ones, it could significantly increase the national debt in the coming years, exacerbating the already dire fiscal situation.
However, Gundlach, who had previously forecasted a recession in the U.S., now believes that a Trump presidency makes such an economic downturn less probable. He said, “I think the Trump victory reduces the chances of a near-term recession quite significantly. Mr. Trump’s agenda over the past three months clearly shows that the likelihood of a recession diminishes under his leadership.”
