If Donald Trump returns to the White House, the budget deficit will widen and the bond market will suffer more than under Joe Biden’s next term, longtime bond investor Bill Gross said Sunday.
In an interview with the publication Financial TimesHe acknowledged that Biden has also seen US debt soar, with the deficit rising to 8.8% of GDP last year from 4.1% in 2022. current.
“Trump is the more bearish of the candidates simply because his agenda advocates further tax cuts and more expensive things,” Gross said. FTlater adding that “Trump’s election would be more destructive.”
That’s because Trump promised to make the 2017 tax cuts permanent and Biden said he would let the cuts expire but would not allow tax increases on Americans who earn less than $400,000 a year.
A Trump campaign spokesman did not immediately respond to a request for comment.
As the federal budget deficit continues to run into the trillions, the Treasury Department has issued a flood of bonds. And as the Federal Reserve keeps rates high longer and shrinks its balance sheet, that puts pressure on bond prices. The Congressional Budget Office projects a budget deficit of $1.6 trillion in fiscal year 2024.
“Scarcity is the culprit; 2 trillion dollars [annual] increase in supply. . . will put some pressure on the market,” Gross said.
He also sounded bearish on stocks, saying investors “need to temper their expectations” and not assume the S&P 500 will continue to deliver the 24% return it did last year.
“Over time, markets should come back. For me, this means prices will rise less than they are now,” he told the magazine FT. “If people expect 10 or 15%, [they] we will work with smaller budgets.”
The worsening US debt and deficit situation in recent months has raised more warning signs on Wall Street.
In March, BlackRock CEO Larry Fink sounded the alarm, joining JPMorgan CEO Jamie Dimon and Bank of America CEO Brian Moynihan. And last month, Citadel’s Ken Griffin said the US was “irresponsible” with its public debt.
Even Treasury Secretary Janet Yellen acknowledged Friday that the prospect of higher rates over the long term will make it more difficult to control deficits and debt spending.