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Bill Gross, retired co-founder of bond giant Pimco, told Bloomberg Television that he has lost faith in the Federal Reserve’s ability to manage the U.S. economy and fight inflation.
Patrick T. Fallon/Agence France-Presse/Getty Image
Bill Gross, the retired fund manager and co-founder of Pimco, who was once known as the “Bond King,” is casting criticism over the way the Federal Reserve has managed interest rates and inflation over the past few years.
In an interview with Bloomberg Television, Gross was asked whether he has faith in the U.S. economy and the people shepherding it. His response was, “Well, no.”
“Let me put it out there: The Fed has not done well in the past three or four years, or five years, in terms of trying to find that magic fed-funds rate that will neither increase inflation or produce deflation,” Gross said. “And so, are they wise enough now to know exactly what the fed-funds rate should be at any point in time, or even six to 12 months down the road? I’d be very cautious.”
The remarks by Gross came during the Federal Reserve’s blackout period leading up to its Jan. 30-31 meeting in Washington. Traders are continuing to cling to expectations for five to six quarter-point rate cuts this year, and are also considering the possibility that the central bank will slow the pace at which it shrinks its $7.67 trillion balance sheet. The process of reducing that balance sheet is what’s known as “quantitative tightening.”
“I would stop quantitative tightening. I think that is just not a correct philosophy or policy at this point in time,” Gross said. In addition, he said the Fed should lower interest rates over the next six to 12 months from their current level of between 5.25%-5.5%.
On Monday, 2-
BX:TMUBMUSD02Y
and 10-year Treasury yields
BX:TMUBMUSD10Y
pulled back from their highest levels of the year. Meanwhile, U.S. stocks closed higher, with the Dow Jones Industrial Average
DJIA
finishing above the 38,000 milestone for the first time in history, according to preliminary data.
Related: Pimco spots opportunity in mortgages as Fed considers when to stop shrinking its balance sheet
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