(Adds quotes on Treasuries)
By Jennifer Ablan
NEW YORK Oct 14 Federal Reserve Chair Janet
Yellen's speech on Friday on running a "high pressure" economy
with a tight labor market to reverse some of the negative
effects of the Great Recession of 2008 suggests the U.S. central
bank will stay accommodative for longer, according to Jeffrey
Gundlach, chief executive of DoubleLine Capital.
"I didn't hear, 'We are going to tighten in December,'"
Gundlach said in a telephone interview. "I think she is
concerned about the trend of economic growth. GDP is not doing
what they want."
Gundlach, who oversees more than $106 billion at Los
Angeles-based DoubleLine, said the GDP Now indicator from the
Atlanta Federal Reserve has been cut in half to 1.9 percent for
the third quarter, after only 1.1 percent actual growth for the
first half of this year.
"GDP Now keeps fading away," he said. "If we get only 1.9
percent GDP for third - and fourth quarters - we are looking at
only 1.5 percent GDP this year."
Gundlach said Yellen's remarks suggest that she embraces the
hypothesis introduced by former U.S. Treasury Secretary Larry
Summers, who said secular stagnation, or a lack of demand, is
pushing down global growth.
Yellen said there are "plausible ways" that running the U.S.
economy hot for a while could fix some of the damage caused to
growth trends by the Great Recession. In her speech to a Boston
Fed conference on Friday, she said that increased business sales
would "almost certainly" help boost the economy. "A tight labor
market might draw in potential workers who would otherwise sit
on the sidelines," she said.
Gundlach said he read Yellen as saying, "'You don't have to
tighten policy just because inflation goes to over 2 percent.'
"Inflation can go to 3 percent, if the Fed thinks this is
temporary," he said. "Yellen is thinking independently and
willing to act on what she thinks."
Gundlach said Yellen's remarks "are in the same range" of
European Central Bank President Mario Draghi's 'Do whatever it
takes' speech in 2012.
Gundlach noted the long-end of the yield curve "hated"
Yellen's remarks, because they suggest the Fed would allow
inflation to run beyond the 2 percent level.
With the 10-year Treasury note now at a yield of 1.80
percent, which is up 48 basis points since early July, Gundlach
said he is less bearish on government bonds. "I'm still
defensive but one notch less than maximum negative on
Treasuries," he said, noting that the yields on Treasury bills,
notes and bonds are now above their 200-day moving averages.
(Reporting by Jennifer Ablan; Editing by Leslie Adler)