Todd Campbell
5 min read
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Legendary fund manager sends blunt 3-word message on economy originally appeared on TheStreet.
There's been considerable debate over the US economy this year. After delivering solid growth in 2024 that propelled the S&P 500 up 24%, worries have mounted that President Trump's tariffs scheme could fuel inflation, crimp spending, and send the economy, stocks, and bonds into a tailspin.
Those favoring tariffs argue they're the best way to strong-arm manufacturing back to America, while opponents say they're inflationary impact couldn't happen at a worse time, given increasing unemployment.
Related: Bank of America unveils surprising Fed interest rate forecast for 2026
It will take time to determine who is correct. Factories take considerable time to build, and most economists think tariffs' inflation impact on business and consumer spending trends won't really be felt until later this year.
There's also the chance that future trade deals reduce the tariff bite. However, that argument lost some of its strength this week when President Trump said that ongoing negotiations with China wouldn't result in lower tariffs on Chinese imports.
Undeniably, this dynamic means there's significant uncertainty, and historically, that's not a great recipe for a strong economy or stock market.
The potential for the US economy to cause problems for stocks and bonds isn't lost on billionaire hedge fund manager Jeffrey Gundlach, the founder of DoubleLine, a hedge fund with over $90 billion in assets under management.
Gundlach recently offered a blunt assessment of the market's future, and given his professional experience since the mid-1980s, investors ought to consider his advice carefully.
A flood of monetary and fiscal stimulus saved the US economy from a Covid-driven depression in 2020, but it sparked runaway inflation that forced the Federal Reserve to employ the most hawkish rate hikes since the 1980s when Fed Chair Paul Volcker won a war against skyrocketing inflation.
The Fed's rate hikes worked, given that inflation has fallen below 3% from over 8% in 2022, but they've done so at a cost. The drag of higher rates has caused layoffs, lifting the US unemployment rate to 4.2% from 3.4% in 2023.
Related: Surprising inflation, China news sends S&P 500 stumbling
The uptick in joblessness prompted Fed Chair Jerome Powell to switch gears again, cutting rates last September, November, and December. However, those cuts have yet to improve employment meaningfully, and they've arguably set the stage for inflation to reassert itself.
