DoubleLine Capital CEO Gundlach is expecting higher rates ahead, cites pro-cyclical policy

DoubleLine Capital CEO Jeffrey Gundlach spoke with CNBC (may be gated).

His comments are straightforward macroeconomics:

• if the Republicans ends up controlling the House … the higher government spending that would result 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”
• “Trump says he’s going to cut taxes … he’s very pro cyclical stimulus”
• “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.”
• “it’s right to see the Trump victory as being as reducing the odds for near term recession fairly substantially”

His comments will probably upset political hacks, but this is basic stuff. Besides, hold onto the political comments for two years when the mid-terms will roll around.

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If you need ….

A pro-cyclical policy is a type of economic policy that amplifies the natural fluctuations of the economic cycle. This means it aligns with and reinforces the current state of the economy. For example:

• During economic expansions, a pro-cyclical policy might involve increasing government spending or cutting taxes, which boosts demand further and can lead to overheating and inflation.
• During economic downturns, it could involve reducing government spending or raising taxes, which decreases demand and can exacerbate the recession.

Pro-cyclical policies are often criticized for worsening economic volatility. In contrast, counter-cyclical policies are designed to moderate the economic cycle, stimulating the economy during downturns and restraining it during booms to achieve stability.

This article was written by Eamonn Sheridan at www.forexlive.com.