The Federal Reserve will lower interest rates by a percentage point to 4.25% by December to avoid recession, bond fund manager Bill Gross predicts.
Gross, who runs the world’s biggest bond fund at Newport Beach-based Pacific Investment Management Co., said the Federal Reserve could start cutting the overnight lending rate between banks during the first half of the year.
Nominal gross domestic product growth of 4% “is not enough to support an asset-based economy that has built-in costs of debt averaging 5% plus,” Gross wrote in his January column on Pimco’s Web site.
The economy grew by 3.8% during the third quarter, down from an average of 6.5% in the previous 3.5 years, according to Bloomberg.
“The Fed will likely respond sometime within the next six months with a series of cuts intended to restimulate growth along with its key asset markets (primarily housing),” Gross wrote.
Gross has a mixed record predicting what the Federal Reserve might do.
In 2005, he predicated the Fed’s tightening would stop at 3.5%. Last year, he saw 5% as a ceiling for rate increases.
In June, the Fed raised rates to 5.25%, its 17th straight increase since 2004.
*To read Gross’ commentary,
see Pimco’s Web site.
