DoubleLine Capital CEO Jeffrey Gundlach said Federal Reserve Chair Jerome Powell has become "policy-fluid." This stance, the Fed's limited toolkit and other factors — such as ballooning U.S. debt — mean the U.S. economy will be quite vulnerable when the next recession hits.
"Any thoughtful person would be concerned," he said during a webcast on Tuesday. Combining these issues with the impact of tariffs, "It's sounding like a pretty bad cocktail of economic risk, … and risk to the long end of the bond market."
The Fed's dovish position on interest rates of late may have boosted stocks, but it gives it less room to maneuver on the downside. "It seems like the economy can't handle a 2.5% fed funds rate," Gundlach said.
The Bond King puts the odds of a Fed rate cut over the next 12 months at roughly 70%.
As for the chance of a recession in the next two years, he said that "would be extremely high." "For the next 12 months, I'd give you a recession probability that's 50-50. Next six months, I'd probably have it down at 30%."
Speaking about the U.S.-China trade war, the wisdom of Trump's approach "depends on the outcome," Gundlach said.
"Tariffs loom very, very large," he added. "This is a standoff of the two largest economies in the world, which doesn't sound like a good thing. We are headed for [more] volatility in bonds and stocks as well, I think."
Drowning in Debt
Overall, the DoubleLine leader stressed the problem of having a national debt level equal to or greater than GDP.
