| NEW YORK
NEW YORK Dec 14 The U.S. Federal Reserve's
decision on Wednesday to raise rates by a quarter point and to
signal a faster pace of increases in 2017 was reasonable,
according to leading bond investor Jeffrey Gundlach, given
growing inflationary pressures and U.S. President-elect Donald
Trump's expected stimulus plans.
"The Fed did the right thing," Gundlach, the chief executive
of DoubleLine Capital, said in a telephone interview. "They had
to change something because of the inflation indicators. You
cannot say, 'We are going to dust off the statement from
Gundlach, who oversees $106 billion at Los Angeles-based
DoubleLine, said the bond market was caught "off guard" after
the Federal Open Market Committee said it was expecting to raise
rates three times in 2017, an increase from the Federal
Reserve's September meeting at which the committee said it
foresaw two increases.
"The guidance is that the Fed could go three times next year
- that is the big news," Gundlach said. The U.S. central bank
could raise interest rates three times in 2017 "if the Consumer
Price Index headline prints above 3 percent," he added.
Shorter-dated U.S. Treasury yields rose to their highest
point in more than five years.
Yields on two-year Treasury notes rose to their
highest level since August 2009, while three-year yields
hit their highest since May 2010 and five-year yields
rose to their highest since May 2011.
Gundlach, known on Wall Street as the "Bond King," went
"maximum negative" on Treasuries on July 6 when the yield on the
benchmark 10-year Treasury note hit 1.32 percent. On Wednesday,
the yield on the 10-year Treasury note closed around 2.57
U.S. stocks fell the most in two months following the Fed's
decision, which Gundlach blamed on the market being
"It went up massively and now it is coming down from those
levels," he said.
Gundlach told Reuters on Tuesday that a U.S. 10-year
Treasury note yield above 3 percent will harm the stock-market
rally and housing market.
"I think above 3 percent is a problem," he said On Tuesday.
"If the 10-year goes above 3 percent, you would also have to say
unequivocally you have seen the end of the bond bull market."
(Reporting By Jennifer Ablan; Editing by Bill Rigby)