Bond guru Jeffrey Gundlach says it's now or never for a Fed rate hike

Gundlach: Treasury slide not surprising
Gundlach: Treasury slide not surprising

Bond guru Jeffrey Gundlach told CNBC on Friday that if the Federal Reserve doesn't raise interest rates in December, "they are never going to raise rates again."

He also said the rise in Treasury yields "is about 80 percent of the way through."

"The bond market is giving them carte blanche to raise interest rates," Gundlach said. "The Fed absolutely should raise rates in December if they ever plan on raising them again."

Gundlach said the sharp turn up in rates since summer already has done the heavy lifting for the U.S. central bank. The benchmark 10-year note has seen a 0.77 percentage point rise since July 6, while the two-year yield has jumped .36 percentage points, all while the Fed has kept the overnight rate anchored below 0.5 percent.

Traders are putting a 76.3 percent chance of a rate hike at the Dec. 13-14 meeting of the Federal Open Market Committee. However, they don't see the next move happening until at least September 2017.

Treasury yields overall jumped to the highest levels this week since January, a possible signal that markets believe Donald Trump's policies could spark a rise in inflation.

"We have really critical resistance on yields," the DoubleLine Capital CEO said on "Fast Money Halftime Report." He said the 35 basis-point rise since the election is not that surprising given the narrative about the Trump victory.

"So, I do think this rate rise is about 80 percent of the way through," he said. "At least this leg of it." He added that the rise will not have a major impact on the economy.

"Think about how interest rates have sort of been at that 2 percent or the lower level on the 10-year for so very long," he said. "I mean think about the residential housing market where so many mortgages have been priced out at 3 percent over the last many years. And what happens if mortgage rates go further from what they've gone up so far."

He said if the Federal Reserve doesn't raise rates in December, "they are never going to raise rates again." Policymakers last raised interest rates in December 2015. That increase was the first in nearly a decade.

Gundlach also commented on Trump's win in the election. He said people just "want something real."

"They want to see things being made. They want to see policies changed," he said. "No more of this man behind the curtain stuff. It means that the financial engineering stocks and momentum stocks and I would say like the FANGs, I would stay away from them in a big way."