world-economy

Bond Market Signals Fed Must Act on Inflation, Not Just Talk

Financial markets are questioning whether the Federal Reserve will follow through on its inflation-fighting rhetoric, according to DoubleLine Capital CEO Jeffrey Gundlach. The Fed held its benchmark rate steady in a 3% range, though three policymakers dissented in favor of a quarter-point increase. Fed Chairman Kevin Warsh pledged the central bank would take necessary steps to achieve its 2% inflation target. However, Gundlach said the Treasury market's reaction suggests skepticism. "If you really want to get to 2%, I think you have to raise interest rates," Gundlach said on CNBC's "Closing Bell" Wednesday. The two-year yield fell 3 basis points while the 10-year jumped more than 7 basis points to 4.681% and the 30-year surged to 5%. Gundlach noted the divergence indicates the "bond market vigilantes" doubt the Fed will raise rates despite inflation concerns. "The bond market is saying, 'If you really want us to believe your rhetoric, you've got to start acting,'" he said. He added that reaching 2% inflation "is going to take a long time" and "we might not get there over the course of the next couple of years."