A dramatic decline in inflation is highly likely by the middle of 2023, said Jeffrey Gundlach, chief executive officer of DoubleLine Capital, speaking at a webinar on macro and market trends sponsored by his firm yesterday.
Inflation will probably fall lower than the consensus estimates of 2% to 3%, “at least temporarily,” said Gundlach, who founded his Los Angeles-based independent money management firm in 2009.
Gundlach’s co-panelist during the webinar was Felix Zulauf, founder of Zulauf Consulting, who added that after bottoming in the second half of 2023, inflation is likely to turn up again in 2024. "Next time,” Zulauf said, “it could go even higher [than in 2022].” He added that it was quite possible the next wave of inflation could come to a head in in 2025, resulting in severe damages to the global economy and financial markets.
The discussion was moderated by Sam Garza, a DoubleLine portfolio manager, who asked Gundlach and Zulauf what they were telling investors going into 2023.
Gundlach, whom Barron’s dubbed “the new bond king” in 2011 and whom Institutional Investor named money manager of the year in 2013, predicted that 2023 “will be a recessionary year.”
Zulauf concurred. “We are actually grinding toward a recessionary period in the first half of 2023,” he said.
Recession is an almost inevitable effect of this year’s drastic rate hikes and quantitative tightening, said Gundlach, which are “draining liquidity from the bond market,” he said.
As a result, he said, the Federal Reserve is likely to reverse its interest rate policy next year. The odds of a rate cut in 2023 are “greater than 75%,” he said.
Zulauf argued that the recession in 2023 will be worldwide, though he acknowledged that he couldn’t say for sure how deep it will be or how long it will last.
He expressed concern about the growing influence of China. Twenty years ago, he said, there were only a handful of small Asian countries that did more trade with China than the U.S. Now, only North America, Central America, the U.K., and three or four European countries trade primarily with the U.S., which he called “a dramatic change.” Zulauf has been watching markets for some 50 years.