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DoubleLine’s Gundlach sees more risk coming, and greater chance of recession

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Jeffrey Gundlach speaking at the 2019 SOHN Conference in New York on May 5, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said Thursday there could be another painful period of volatility on the horizon as the fixed income guru sees heighted risk of a recession.

“I believe that investors should have already upgraded their portfolios … I think that we’re going to have another bout of risk,” Gundlach said on CNBC’s “Closing Bell.”

Gundlach, whose firm managed about $95 billion at the end of 2024, said DoubleLine has lowered the amount of borrowed funds to amplify positions in its leveraged funds to the lowest point in the company’s 16-year history.

Volatility recently spiked after President Donald Trump‘s aggressive tariffs on leading trading partners triggered fears of an economic slowdown, spuring a month-long pullback in the S&P 500 that tipped the benchmark into a 10% correction last week. The index is now about 8% below its all-time high reached in February.

The widely-followed investor now sees a 50% to 60% chance of a recession in coming quarters.

“I do think the chance of recession is higher than most people believe. I actually think it’s higher than 50% coming in the next few quarters,” Gundlach said.

His comments came after the Federal Reserve downgraded its outlook for economic growth and hiked its inflation outlook Wednesday, raising fears of stagflation. The Fed still expects to make two rate cuts for the remainder of 2025, even though it said the inflation outlook has worsened.

Gundlach is recommending U.S. investors move away from American securities and find opportunities in Europe and emerging markets.

“It’s probably time to pull the trigger for real on dollar-based investors diversifying away from simply United States investing. And I think that’s going to be a long term trend,” he said.

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Here's what changed in the new Fed statement

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This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in March.

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Fed rate decision May 2025: Fed holds rates steady

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Fed leaves rates unchanged, but risks of higher inflation and unemployment has risen

WASHINGTON, D.C. — The Federal Reserve on Wednesday held its key interest rate unchanged as it waits for the Trump administration’s trade policy to take shape and sees its impact on a sputtering economy.

In a move that carried little suspense given the wave of uncertainty sweeping the political and economic landscape, the Federal Open Market Committee held its benchmark overnight borrowing rate in a range between 4.25%-4.5%, where it has been since December.

The post-meeting statement noted the volatility and how that is factoring into policy decisions.

“Uncertainty about the economic outlook has increased further,” the statement said. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

However, the statement did not specifically address the tariffs, though Chair Jerome Powell is sure to be asked about them in his post-meeting news conference at 2 p.m. ET.

Finding the balance between the two elements of the Fed’s so-called dual mandate of full employment and stable prices has been made more difficult lately amid President Donald Trump‘s tariff push.

In noting that tariffs both threaten to aggravate inflation as well as slow economic growth, the statement raises the possibility of a stagflationary scenario largely absent from the U.S. since the early 1980s.

Policymakers have largely been in agreement that the central bank is in a good position, with the economy generally holding up for now, to be patient as it calibrates monetary policy.

The Fed’s deliberations come as the White House is locked on negotiations with top U.S. trading partners during a 90-day negotiating period that began in early April. Trump slapped 10% across-the-board tariffs on U.S. imports and threatened other individual “reciprocal” duties pending ongoing talks.

As near-daily headline changes gauge the trade war, the economy has been flashing conflicting signals on growth, inflation and consumer and business sentiment.

Gross domestic product, the broadest measure of economic performance, fell 0.3% in the first quarter, the product of slower consumer and government spending and a surge in imports ahead of the tariffs. Most Wall Street economists expect the economy will return to positive growth in the second quarter.

The FOMC statement noted that “swings in net exports have affected the data,” and held to its recent characterization that the economy “has continued to expand at a solid pace.”

Indeed, job growth has held up despite Trump’s efforts to pare down the federal work force. Nonfarm payrolls increased by 177,000 in April and the unemployment rate held at 4.2%, giving the Fed room to breathe if it expects a further economic slowdown.

Inflation has been ticking lower and approaching the Fed’s 2% target, but tariffs are expected to result in at least a one-time rise in prices. Trump has pushed the Fed to cut rates as inflation has eased. The central bank’s preferred gauge showed headline inflation at 2.3%, or 2.6% on core that excludes food and energy.

However, as with all aspects of the economy, it all depends on what happens with tariffs.

Recent indications of progress in negotiations along with some softening from the administration has helped reverse a huge stock market sell-off after the April 2 “liberation day” announcement from Trump. However, business surveys show a high degree of anxiety, with most managers reporting concerns about supplies and pricing from the tariffs.

Market pricing regarding Fed action has been volatile as well.

Heading into the meeting, pricing indicated virtually no chance of a cut this week and less than 30% probability of a move in June, with the next cut expected in July. Traders are pricing in a total three cuts this year, though that could change following Wednesday’s decision.

The committee’s decision to hold the benchmark rate steady was unanimous. The fed funds rate is used by banks for overnight lending but also feeds into other consumer debt such as mortgages, auto loans and credit cards.

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Stocks making the biggest moves midday: GOOGL, DIS, ANET, SMCI

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