DoubleLine CEO Jeffrey Gundlach discussed the potential impact of President Trump’s tax reform plan on the U.S. economy, raising concerns it could lead to an increase in the budget deficit.
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Gundlach told the FOX Business Network’s Maria Bartiromo, “The budget deficit could go up, with the tax plan probably not being revenue neutral if you cut taxes. I mean when you have a tax plan, your assumption is 3% or even 4% economic growth is what balances this to be a non-deficit.”
Gundlach saw Trump’s goal of 4% growth as unlikely and even saw the potential for 3% growth as only a temporary spike.
“That growth is a big ‘if’ and I don’t think the math works to get you to 4% economic growth, you could probably get to 3% for some period of time if you got lucky.”
Gundlach says the administration is not taking into account that even though the deficit had been stable for four to five years, it would likely expand due to entitlements.
“The deficit also is slated to expand anyway because of the demographics of the entitlement plans. It’s not like it was for the past four or five years where the deficit, nobody talked about the deficit anymore.”
Gundlach then cautioned, “Under the wrong set of circumstances, the deficit could easily get up to 6%, 8% of GDP again.”
Gundlach even suggested a recession is not beyond the realm of possibility.
“Maybe we’ll have a recession in the next five years, I mean, it wouldn’t be that strange, it’s been eight years of an economic cycle so far,” Gundlach warned on ‘Mornings with Maria.’
But Gundlach said that according to the latest economic data, a recession is highly unlikely.
“Right now, I can’t find a recession anywhere. Leading indicators are great. Unemployment is low, optimism is very high.”
Gundlach says there is a risk the economic data could change for the worse quickly.
“But the visibility of these indicators is not more than six months, these things can change pretty dramatically over even a three or four month period.”