Noted billionaire bond investor Jeffrey Gundlach warned this week during an interview that the United States could face a “large, multi-generational reset” after the 2024 election.
“This is a really big problem because we have such a large amount of expenditures that are mandatory,” he explained. “We don’t have the money right to have interest expense that high.”
Referring to decades of U.S. deficit spending, “There is a real problem with this massive deficit. We’re going to not be able to really refinance this debt,” he said. “And I think that’s going to lead to a crisis in the dollar, which will lead to a crisis in the economy.”
Instead, what will get the Fed to act, according to Mr. Gundlach, relates to the stock market “dropping.” If that happens, it’s “the straw that breaks the Fed’s back when it comes to giving up on maintaining higher interest rates,” he said.
Later in the interview, the investor linked societal trends and attitudes with the economy, arguing that radical changes come with long-term economic cycles.
“You know, the women’s movement was a big deal back in the seventies. Women’s rights, equal opportunity. Now it’s the opposite of that. At least in athletics, women are under attack,” he said, referring to pushes to get biological males to compete with women.
“So it’s weird how everything changes, but that’s the way society and long-term economic cycles work is that things that were norms in the past become outdated as societal conditions change, attitudes change, the means of production change, and those norms just can’t hold up,” Mr. Gundlach said.
As of now, he warned, “we’re in one of those radical transformations.”
“Of course, we see that in the political spectrum where, everyone thought the 2016 election was wacky, and then the 2020 election turned out to be wackier. And I think everybody can sense that the 2024 election is going to be the wackiest of our lifetime,” Mr. Gundlach predicted. “I think we’re looking at a very large generational, multi-generational reset.
He added that modern people won’t “make the mistakes our parents made,” adding, “We make the mistakes that our grandparents and great-grandparents made.”
“And that’s why these cycles seem to be sort of 75 years in length. And there was the Civil War, then there was World War II, and now look where we are. We’re about 75 years after that. And so this is somewhat predictable, if not totally predictable,” he concluded.
His comment about the Federal Reserve comes as the central bank this week released minutes of one of its meetings, showing that officials launched an expansive debate about a coming turn in U.S. monetary policy and expressed concern about how long the U.S. economy could hold up with its current interest rates.
Fed Chair Jerome Powell had laid out the broad contours of the meeting at a press conference held at its conclusion, noting that the central bank was likely done raising interest rates and expected to begin reducing borrowing costs by the end of 2024.
While the minutes did not provide direct clues about when rate cuts might commence, they reflected a growing sense that inflation is under control and growing concern about the risks that “overly restrictive” monetary policy may pose to the economy.
The document caps a year that began with the Fed still uncertain about how much harm it might have to inflict on the economy to control inflation and Mr. Powell warning of “pain” to come, but ended with inflation falling faster than anticipated and policymakers becoming increasingly hopeful that they could tame inflation while skirting the recession even staff members thought was sure to come.
“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular,” the minutes said.
The minutes shed little direct light on when rate cuts might commence. Participants noted “an unusually elevated degree of uncertainty” about the economic outlook, with further rate increases still possible. But “most” felt that monetary policy was having its intended impact on inflation and would continue to do so by dampening household and business spending and pulling inflation back to target.
Coming policy decisions would be “careful and data-dependent,” the minutes said.
“There is nothing in these minutes to dissuade us that the Fed will start to cut interest rates from this March onwards,” said Paul Ashworth, Chief North America economist at Capital Economics.
The U.S. central bank will meet on Jan. 30 and Jan. 31, where it will make a decision on raising, lowering, or keeping rates the same.
