Bloomberg News

Gross Says Fed to Maintain Easing Policy, Consider More QE

February 03, 2012

Feb. 3 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross said the Federal Reserve will maintain accommodative monetary policy and consider more asset purchases even with the U.S. employment market expanding.

Gross domestic product in the first half of the year will probably be 2 percent to 2.5 percent, which will leave the Fed unsatisfied with growth, Gross, manager of the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

Employment climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest in three years. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed in Washington. The unemployment rate dropped to 8.3 percent, the lowest since February 2009.

The Fed purchased $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2 as part of its efforts to support the world’s biggest economy. Policy makers last month said they plan to keep their benchmark interest rate near zero until at least the end of 2014. Fed Chairman Ben S. Bernanke said following the central bank’s Jan. 25 meeting that he’s considering another program of debt purchases if it appears the recovery isn’t progressing.

Gross boosted the proportion of U.S. government and Treasury debt in the $250 billion Total Return Fund to 30 percent of assets in December, the highest since November 2010. His fund has returned 6.95 percent in the past year, topping 53 percent of its peers, according to data compiled by Bloomberg. It gained 2.78 percent over the past month, beating 99 percent of his competitors.

The zero-bound interest rate policies embraced by central banks including the Federal Reserve may end up killing as opposed to creating credit and developed economies may suffer accordingly, Gross wrote in a monthly investment outlook released two days ago on Newport Beach, California-based Pimco’s website. While recent actions by policy makers provide assurances that short and intermediate U.S. bond yields may not change for years, any potential for price appreciation is limited, he wrote.

--Editor: Dave Liedtka

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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