Finance

DoubleLine’s Gundlach says expect higher rates if Republicans also win House

Published

2 months ago

November 7, 2024

Business Finance News

Jeffrey Gundlach speaks at the 24th Annual Sohn Investment Conference in New York, May 6, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said Thursday that interest rates could shoot higher if Republicans end up controlling the House, securing a governing trifecta that gives President-elect Donald Trump free rein to spend as he pleases.

Gundlach, a noted fixed-income investor whose firm manages over $96 billion, believes the higher government spending would require more borrowing through Treasury issuance, putting upward pressure on bond yields.

“If the House goes to Republicans, there’s going to be a lot of debt, there’s going to be higher interest rates at the long end, and it’ll be interesting to see how the Fed reacts to that,” Gundlach said on CNBC’s “Closing Bell.”

The race to control the House is undecided as of Thursday after Republicans clinched their new Senate majority. The Federal Reserve cut rates Thursday, and traders expect the central bank to cut again in December and several times in 2025.

Notable investors such as Gundlach have been voicing concerns about the challenging fiscal situation. Fiscal 2024 just ended with the government running a budget deficit in excess of $1.8 trillion, including more than $1.1 trillion dedicated solely to paying financing costs on the $36 trillion U.S. debt.

“Trump says he’s going to cut taxes … he’s very pro cyclical stimulus,” Gundlach said. “So it looks to me that there will be some pressure on interest rates, and particularly at the long end. I think that this election result is very, very consequential.”

If the Trump administration extends the 2017 tax cuts or introduces new reductions, it could add a significant amount to the nation’s debt in the next few years, worsening the already troublesome fiscal picture.

Still, Gundlach, who had predicted a recession in the U.S., said the Trump presidency makes such an economic downturn less likely.

“I do think that it’s right to see the Trump victory as being as reducing the odds for near-term recession fairly substantially,” Gundlach said. “Certainly, the odds of recession drop when you have this type of agenda being promoted in plain English for the past three months by Mr. Trump.”

Finance

Stocks making the biggest moves midday: AAL, AVGO, JPM

Published

1 day ago

December 24, 2024

Business Finance News

Finance

Biggest banks planning to sue the Federal Reserve over annual stress tests

Published

1 day ago

December 24, 2024

Business Finance News

A general view of the Federal Reserve Building in Washington, United States.

Samuel Corum | Anadolu Agency | Getty Images

The biggest banks are planning to sue the Federal Reserve over the annual bank stress tests, according to a person familiar with the matter. A lawsuit is expected this week and could come as soon as Tuesday morning, the person said.

The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends.

After the market close on Monday, the Federal Reserve announced in a statement that it is looking to make changes to the bank stress tests and will be seeking public comment on what it calls “significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.”

The Fed said it made the determination to change the tests because of “the evolving legal landscape,” pointing to changes in administrative laws in recent years. It didn’t outline any specific changes to the framework of the annual stress tests.

While the big banks will likely view the changes as a win, it may be too little too late.

Also, the changes may not go far enough to satisfy the banks’ concerns about onerous capital requirements. “These proposed changes are not designed to materially affect overall capital requirements, according to the Fed.

The CEO of BPI (Bank Policy Institute), Greg Baer, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, welcomed the Fed announcement, saying in a statement “The Board’s announcement today is a first step towards transparency and accountability.”

However, Baer also hinted at further action: “We are reviewing it closely and considering additional options to ensure timely reforms that are both good law and good policy.”

Groups like the BPI and the American Bankers Association have raised concerns about the stress test process in the past, claiming that it is opaque, and has resulted in higher capital rules that hurt bank lending and economic growth.

In July, the groups accused the Fed of being in violation of the Administrative Procedure Act, because it didn’t seek public comment on its stress scenarios and kept supervisory models secret.

CNBC’s Hugh Son contributed to this report.