Gundlach Warns Recession to Start in Few Months, Fed to Cut Rates
on this debate and we've seen it very clearly articulated by the likes of Jeffrey Gunnlock on one side saying do you know what we are facing recession is going to happen in weeks or months they're going to be rate cuts as a result and then BlackRock and Waylee of BlackRock coming out saying no they're not going to resort the Fed to the old playbook that debate is intense how the markets pricing this. Look I have a lot of sympathy for what Gunnlock said yesterday many people who are pessimists about this regional banking crisis are claiming that you know the situation doesn't end until the Fed cuts rates that the regional bank business model is coming under a lot of stress for that reason they can't compete with money markets who are offering four to five percent yield and the front end of the yield curve is is very inverted and the regional banks business model is not very profitable when that's when that went if that stays so until the Fed cuts rates you know this this situation is going to continue you know tightening of credit standards which Powell and many of the Fed members warned us over the weekend that that is coming and is going to hit economic growth that's going to continue until the Fed cuts and I think that's the the prism through which Gunnlock is seeing the situation. We have Fed speakers later this week and then the PCE index as well towards the end of the week look and pair that into how markets then could be positioning towards the end of this week and how adjusting or how those adjustments may come through. It's remarkable to think that some some of the Swatts market surprising 4.2 percent now by the end of the year. Yeah so I know we get PC on Friday but because we've gotten PPI and CPI we have a good estimation of where it's going to come. I think a lot of the market attention is going to be elsewhere.
We're going to be laser focused on things like lending surveys. You know what what is the reaction function of these regional banks. Will they actually pull back on tightening and to what extent to that manner we get the senior loan officer opinion survey. It's done quarterly. We're going to get that survey before the Fed meets again. I think that is the risk that's going to cause the Fed to pause if those tightening of conditions come. But but again you know the Fed has told us many times they're going to attempt to keep rates high and they're going to let the balance sheet expand as needed and that is a very dire situation for the dollar because if we get to a point in later half of the year where the Fed is forced to cut rates to help the regional banking the regional banking crisis.
Shall I say you know the dollar is going to sink. Gold is going to rise. Real yields will go back into negative territory and trench inflation. You know it could be here to stay especially as the fiscal lever is it's back to stimulus already.
Bloomberg