NEW YORK (Reuters) - Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, said the U.S. economy faces a 30 percent chance of recession next year after the Federal Reserve’s first interest rate increase in nearly a decade on Wednesday.
“Commodity prices so weak suggest dwindling global growth,” Gundlach told Reuters.
Gundlach, who has warned against interest-rate increases all year, said weak nominal gross domestic product growth; falling commodity prices, especially in energy which portend higher corporate default rates; tightening financial conditions and higher financing costs for corporations will affect growth next year.
The Federal Reserve’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.
”With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,“ Fed Chair Janet Yellen said in a press conference after the rate decision was announced. ”The economic recovery has clearly come a long way.
Gundlach, who oversees $80 billion at the Los Angeles-based DoubleLine, said the Fed “had no reason to raise rates and Yellen’s lack of an answer as to why they did proves it. She couldn’t answer the question as to why they raised rates today.”
Gundlach said the recent announcement of Third Avenue’s decision to block redemptions and liquidate a fund with $789 million in assets came at an auspicious time. “If the gating would have been announced a month ago, I believe many credit hedge funds would have seen a spike in year-end redemption requests,” Gundlach said. “But by now the deadlines for redemptions have passed for most funds.”
Reporting By Jennifer Ablan; Editing by Cynthia Osterman