As fiscal policy comes into focus under President Donald Trump, the Federal Reserve is becoming less influential in U.S. markets, bond guru Bill Gross told CNBC's "Power Lunch" on Wednesday.
The Fed's monetary policy tightening is taking place against a backdrop of other central banks, like the European Central Bank and the Bank of Japan, buying up billions of dollars in bonds. European and Japanese easing is effectively taking the Fed's place in the global bond market, Gross said.
"I think fiscal policy is the dominant trend in the United States," he said. "But let's not forget other central banks and the minute that they stop buying bonds is the minute that the bear market in bonds may begin."
The Fed concluded a two-day policy meeting on Wednesday and released a statement with a forecast for its 2017 agenda. In the statement, the U.S. central bank did not raise interest rates, but nodded to rising optimism in the business community and among consumers.
The Federal Open Market Committee held its interest rate target for 2017 steady. It also erased a reference to the effect of slumping energy prices on inflation, as increasing oil prices have not had their usual dampening effect on the inflation rate.
Gross added that the pace of the Fed's policy tightening could leave bond investors disappointed.
"What's critical to Treasury yields is the pace that the Fed moves toward its new neutral policy rate, which, to define, is a rate or yield at which the economy and inflation are in balance," Gross said. That could be about 2 percent, he added.
"And if that happens over the next two years, then the 10-year will hit 3 percent in 2019," Gross continued. "And … if it does and if it hits 2.60, then the return to bond investors will be a paltry 1 percent or even less."
Investors are now homing in on Trump's plans for infrastructure spending and tax cuts. A variety of economists say the policy mix is bullish for growth, interest rates and the U.S. dollar.
In January, Gross told "Power Lunch" that he was "skeptical" the new administration's economic plan would spur productivity and thereby create as much growth as Trump has vowed to create.