Why 'The Big Short' investor Kyle Bass says the US might need to go through a recession

• Investor Kyle Bass sees a recession as potentially needed to get the US economy back on solid footing.
• "We must reset our trade relationships with the rest of the world, we also must narrow our fiscal deficit," he told Bloomberg TV.
• But he doesn't except a major downturn from recent tariff policy.

A recession is a tough pill to swallow, but it might be just what the US economy needs, veteran investor Kyle Bass said.

Bass, who gained a reputation as one of the traders who successfully navigated the 2008 housing crisis, said that an economic reset could help confront some of the problems the US has been dealing with.

"We must reset our trade relationships with the rest of the world, we also must narrow our fiscal deficit in the United States, and both of those things might be slightly recessionary," he told Bloomberg TV. "And if that's true, we might have to go through a brief recession in order to rebuild our foundation."

Bass made his comments in support of Donald Trump's recent tariff actions. He further noted that previous tariffs have been a national security consideration, protecting US industries at risk from foreign products.

His remarks are in line with the Trump administration. Trump has lifted tariff rates to 10% across the board while adding additional levies for specific countries. The president cited the trade war as a way to correct perceived inequities and has previously touted levies as an effective way to raise revenue for the government.

Yet, while Wall Street commentators have said Trump is right in trying to adjust trade policy in a more favorable direction for the US, fears about the trade war's impact on markets and the economy soared after tariffs were unveiled last week.

As recessionary and global growth fears spiked among investors, Pershing Square founder Bill Ackman rang alarms about an "economic nuclear war." JPMorgan chief Jamie Dimon added his two cents, saying that tariffs have put the US on a possible path to stagflation.

But to Bass, some of these outlooks and the stock market's plunge was an overreaction. At most, upcoming data will show a "recessionary impulse," but tariffs won't do much more than that.

"You're going to see a slight inflationary uptick on a couple of goods that ended up in the tariff melee," he said. "But I believe the slight recession impulse that we're going to see over the next six months will actually bring the general price level down. I don't think you're going to see a big inflationary move or stagflationary move."