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A version of this article was previously published in the Financial Times
Brooke Masters in New York
MARCH 19 2022
Former Pimco ‘bond king’ predicts central bank will be unable to go above 2.5% to 3%
Bill Gross, the influential investor, has warned that even though the Federal Reserve started raising rates this week the US central bank will be unable to push through a planned series of further increases because doing so would “crack the economy”.
The founder of investment house Pimco told the Financial Times this week he believes inflation is approaching troubling levels but the US central bank will not be able to implement higher policy rates to contain it.
“I suspect you can’t get above 2.5 to 3 per cent before you crack the economy again,” he said. “We’ve just gotten used to lower and lower rates and anything much higher will break the housing market.”
Gross’s concern stands in contrast to the central bank policymakers’ consensus and market expectations of a 2.8 per cent policy rate by 2023 and to calls from St Louis Fed president James Bullard to hit 3 per cent by the end of this year.
Dubbed “the bond king” for his decades of successful investing, Gross has been railing against low policy rates for years.
“It destroys the savings function,” he said. “Meme stocks and NFTs [non fungible tokens], all of this nonsense in my mind has developed from the inability to earn a decent return in your 401k” retirement plan.