Finance

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, spurring a monthlong 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. More

Tariffs are expected to raise the U.S. inflation rate in 2025, Federal Reserve chair Jerome Powell said Wednesday.
U.S. businesses pass tariff costs on to consumers, both directly and indirectly, economists said.
An increase in the inflation rate may be relatively short-lived, if tariffs amount to a one-time price increase, economists said.

Fang Dongxu/VCG via Getty Images

There was an oft-repeated message in Federal Reserve chair Jerome Powell’s press conference on Wednesday: Tariffs will raise consumer prices.
The U.S. central bank raised its inflation forecast for 2025, as have many economists, due to the expected impact of a trade war initiated by the Trump administration.

“A good part of it is coming from tariffs,” Powell said of the Fed’s elevated inflation estimate.
“I do think with the arrival of the tariff inflation, further progress may be delayed,” Powell said.
His statement comes at a time when pandemic-era inflation has gradually declined but hasn’t yet been fully tamed to the Fed’s goal of a 2% annual inflation rate.
“Tariffs are simply inflationary, despite what [President] Donald Trump may tell people,” said Bradley Saunders, a North America economist at Capital Economics.

Why tariffs raise consumer prices

Tariffs are a tax on imports. U.S.-based importers — say, clothing retailers or supermarkets — pay the tax so goods can clear customs and enter the country.

Tariffs raise prices for consumers in a few ways, economists said.
For one, tariffs add costs for U.S. businesses, which may charge higher prices at the store rather than take a hit on profits, Saunders said.
Tariffs are a protectionist economic policy, meaning they seek to protect U.S. businesses from international competition by making foreign products more expensive.
Consumers may switch to a U.S. product rather than pay a higher price for the foreign counterpart. However, that logic may not pan out. The U.S. substitute was likely more expensive than the foreign product to start, Saunders said — otherwise, why wouldn’t consumers buy the U.S.-produced good to begin with?
So tariffs may still leave the consumer paying more, whichever products they choose to buy, he said.

Federal Reserve Chairman Jerome Powell delivers remarks at a news conference following a Federal Open Market Committee (FOMC) meeting at the Federal Reserve on March 19, 2025 in Washington, DC.
Kevin Dietsch | Getty Images

Tariffs on Canada, China and Mexico, for example, would cost the typical U.S. household about $1,200 a year, according to a February analysis by economists at the Peterson Institute for International Economics. (This analysis modeled the direct costs of a 25% tariff on Canada and Mexico, and 10% additional tariff on China.)
The president’s economic agenda, including tariffs, will create new jobs, White House spokesperson Kush Desai said in response to a request for comment from CNBC about the inflationary impact of tariffs.

Indirect tariff impact

Trump has imposed a slew of tariffs since taking office in January.
The Trump administration raised levies on imports from China and on many products from Canada and Mexico — the three biggest trade partners of the U.S. It put 25% tariffs on steel and aluminum and plans to put reciprocal tariffs on all U.S. trade partners in April. The White House also signaled duties on copper and lumber are forthcoming.
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During his first term, President Trump imposed tariffs on about $380 billion of imports, in 2018 and 2019, according to the Tax Foundation. The Biden administration kept most of them intact.
This time around, the tariffs are much broader. They currently impact more than $1 trillion, the Tax Foundation said. The sum will increase to $1.4 trillion if temporary exemptions for some Canadian and Mexican products lapse in early April, it said.
It was largely a “U.S.-China” trade war during Trump’s first term, Saunders said. “Now it’s a “U.S.-everyone trade war,” he said.
There are indirect consumer impacts from tariffs, too, economists said.
To that point, many U.S. companies use products subject to tariffs to manufacture their goods.

Take steel, for example: Automakers, construction firms, farm-equipment manufacturers and many other businesses use steel as a production input.
Tariffs may raise auto prices by $4,000 to as much as $12,500, depending on different factors like vehicle type, according to an estimate by consulting firm Anderson Economic Group.
Builders estimate that recent tariffs will add $9,200 to the cost of a typical home, according to the National Association of Home Builders.
Economic studies suggest that, while tariffs may create jobs in certain protected U.S. industries, they ultimately cost U.S. jobs on a net basis, after accounting for retaliation and higher production costs for other industries.
“By trying to protect certain industries, you can actually make other industries more vulnerable,” Lydia Cox, an assistant professor of economics at the University of Wisconsin-Madison who studies international trade, said during a recent webinar.

Short-term ‘pain’?

Trump has said the administration’s tariff policy may cause short-term “pain” for Americans.
Economists stress that there’s ample uncertainty, and that a bump in inflation may be temporary rather than something that raises prices consistently over the long term.
Treasury Secretary Scott Bessent alluded to this outcome during a recent CNBC interview.
“Tariffs are a one-time price adjustment,” Bessent said. He also the Trump administration was “not getting much credit” for falling costs of oil and mortgages rates.

The Federal Reserve raised its 2025 inflation forecast by 0.3 percentage points to 2.8% in its summary of economic projections issued Wednesday, up from its 2.5% estimate in December. (This projection is for the “core” Personal Consumption Expenditures Price Index. PCE is the Fed’s preferred inflation gauge, and core prices strip out the volatile food and energy categories.)
Similarly, Goldman Sachs Research expects core PCE to “reaccelerate” to 3% in 2025, up about half a percentage point from its prior forecast.
“It’s really hard to know how this is going to work out,” Fed chair Powell said. More

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The rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December.
The FOMC downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection.
Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December.
In addition to the rate decision, the Fed announced a further scaling back of its “quantitative tightening” program in which it is slowly reducing the bonds it holds on its balance sheet.

WASHINGTON – The Federal Reserve in a closely watched decision Wednesday held the line on benchmark interest rates though still indicated that reductions are likely later in the year.
Faced with pressing concerns over the impact tariffs will have on a slowing economy, the rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Markets had been pricing in virtually zero chance of a move at this week’s two-day policy meeting.

Along with the decision, officials updated their rate and economic projections for this year and through 2027 and altered the pace at which they are reducing bond holdings.

Despite the uncertain impact of President Donald Trump’s tariffs as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025. The Fed prefers to move in quarter percentage point increments, so that would mean two reductions this year.
Investors took encouragement that further cuts could be ahead, with the Dow Jones Industrial Average rising more than 400 points following the decision. However, in a news conference, Federal Reserve Chair Jerome Powell said the central bank would be comfortable keeping interest rates elevated if conditions warranted it.
“If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” he said. “If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”

Uncertainty has increased

In its post-meeting statement, the FOMC noted an elevated level of ambiguity surrounding the current climate.

“Uncertainty around the economic outlook has increased,” the document stated. “The Committee is attentive to the risks to both sides of its dual mandate.”
The Fed is charged with the twin goals of maintaining full employment and low prices.

Federal Reserve Chairman Jerome Powell delivers remarks at a news conference following a Federal Open Market Committee (FOMC) meeting at the Federal Reserve on March 19, 2025 in Washington, DC.
Kevin Dietsch | Getty Images

At the news conference, Powell noted that there had been a “moderation in consumer spending” and it anticipates that tariffs could put upward pressure on prices. These trends may have contributed to the committee’s more cautious economic outlook.
The group downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December. On inflation, core prices are expected to grow at a 2.8% annual pace, up 0.3 percentage point from the previous estimate.
According to the “dot plot” of officials’ rate expectations, the view is turning somewhat more hawkish on rates from December. At the previous meeting, just one participant saw no rate changes in 2025, compared with four now.
The grid showed rate expectations unchanged over December for future years, with the equivalent of two cuts expected in 2026 and one more in 2027 before the fed funds rate settles in at a longer-run level around 3%.

Scaling back ‘quantitative tightening’

In addition to the rate decision, the Fed announced a further scaling back of its “quantitative tightening” program in which it is slowly reducing the bonds it holds on its balance sheet.
The central bank now will allow just $5 billion in maturing proceeds from Treasurys to roll off each month, down from $25 billion. However, it left a $35 billion cap on mortgage-backed securities unchanged, a level it has rarely hit since starting the process.
Fed Governor Christopher Waller was the lone dissenting vote for the Fed’s move. However, the statement noted that Waller favored holding rates steady but wanted to see the QT program go on as before.
“The Fed indirectly cut rates today by taking action to reduce the pace of runoff of its Treasury holdings,” Jamie Cox, managing partner for Harris Financial Group, said. “The Fed has multiple things to consider in the balance of risks, and this move was one of the easiest choices. This paves the way for the Fed to eliminate runoff by summer, and, with any luck, inflation data will be in place where reducing the Federal Funds rate will be the obvious choice.”
The Fed’s actions follow a hectic beginning to Trump’s second term in office. The Republican has rattled financial markets with tariffs implemented thus far on steel, aluminum and an assortment of other goods against U.S. global trading partners.
In addition, the administration is threatening another round of even more aggressive duties following a review that is scheduled for release April 2.
An uncertain air over what is to come has dimmed the confidence of consumers, who in recent surveys have jacked up inflation expectations because of the tariffs. Retail spending increased in February, albeit less than expected though underlying indicators showed that consumers are still weathering the stormy political climate.
Stocks have been fragile since Trump assumed office, with major averages dipping in and out of correction territory as administration officials cautioned about an economic reset away from government-fueled stimulus and toward a more private sector-oriented approach.
Bank of America CEO Brian Moynihan earlier Wednesday countered much of the gloomy talk recently around Wall Street. The head of the second-largest U.S. bank by assets said card data shows spending is continuing at a solid pace, with BofA’s economists expecting the economy to grow around 2% this year.
However, some cracks have been showing in the labor market. Nonfarm payrolls grew at a slower-than-expected pace in February and a broad measure of unemployment that includes discouraged and underemployed workers jumped a half percentage point during the month to its highest level since October 2021.
“Today’s Fed moves echo the kind of uncertainty Wall Street is feeling,” said David Russell, global head of market strategy at TradeStation. “Their expectations are a little stagflationary because GDP estimates came down as inflation inched higher, but none of it is very decisive.”
—CNBC’s Sarah Min contributed to this report.

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Any time share prices are slumping, it is worth looking at a chart of America’s S&P 500 index that goes back to 1987. That year on October 19th, or “Black Monday”, it plummeted by 20% in a single day—a crash not equalled before or since. The shock was so great that regulators subsequently devised “circuit breakers”, which automatically halt trading after a big enough drop, to prevent a repetition. Pull up a chart stretching from then to today, however, and Black Monday is barely visible, dwarfed by the scale of the subsequent returns. For long-term investors, what felt like an earth-shaking event at the time turned out to be little more than a blip. More

U.S. Federal Reserve Chair Jerome Powell testifies before a House Financial Services Committee hearing on “The Semiannual Monetary Policy Report to the Congress,” on Capitol Hill in Washington, D.C., on Feb. 12, 2025.
Nathan Howard | Reuters

Federal Reserve officials slashed their economic outlook in the latest projections released Wednesday, seeing the U.S. economy growing at a pace lower than 2%.
The rate-setting Federal Open Market Committee downgraded its collective outlook for economic growth to 1.7%, down from the last projection of 2.1% in December. In the meantime, officials hiked their inflation outlook, seeing core prices growing at a 2.8% annual pace, up from the previous estimate of 2.5%. The moves suggested the central bank sees the risk of a stagflation scenario, where inflation rises as economic growth slows.

In a statement, the FOMC noted the “uncertainty around the economic outlook has increased,” adding that the Fed is “attentive to the risks to both sides of its dual mandate.”
Fears of an economic slowdown and inflation reacceleration have increased significantly as President Donald Trump’s aggressive tariffs on key U.S. trading partners are expected to raise prices of goods and services and dent consumer spending.
“Inflation has started to move up now. We think partly in response to tariffs and there may be a delay in further progress over the course of this year,” Fed Chair Jerome Powell said at a news conference. “Overall, it’s a solid picture. The survey data both household and businesses show significant large rising uncertainty and significant concerns about downside risks.”
For now, the Fed still expects to make two rate cuts for the remainder of 2025, according to the median projection, even as the inflation outlook was raised.
The so-called dot plot indicated that 19 FOMC members, both voters and nonvoters, see the benchmark fed funds rate at 3.9% by the end of this year, equivalent to a target range of 3.75% to 4%. The central bank kept its key interest rate unchanged in a range between 4.25%-4.5% on Wednesday.

Still, their view has leaned more hawkish in their rate projection, with four members seeing no rate changes in 2025. At the January meeting, just one official foresaw no changes in interest rates this year.
Here are the Fed’s latest targets:

Arrows pointing outwards

— CNBC’s Jeff Cox contributed reporting.

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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 January.
Text removed from the January statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

Arrows pointing outwards More

The Trump administration has been extraordinarily blasé about falling stocks. “I can tell you that corrections are healthy, they are normal,” said Scott Bessent, America’s treasury secretary on March 16th, in the government’s most recent shrug. The stumble in America’s long stockmarket rally—the S&P 500 index is down by 8% from its all-time high in February—may have been prompted by Donald Trump’s enthusiasm for tariffs, but it has been exacerbated by the perception that the new administration is quite relaxed about the dip, and therefore likely to continue pursuing damaging policies. More