Declining housing prices will drive federal interest rates for years to come, said Bill Gross of Newport Beach-based bond fund manager Pacific Investment Management Co. on Monday.
Gross, who manages the world’s largest bond fund, predicted the Federal Reserve will lower interest rates to 3.75% with the next 12 months, down from 4.75% now.
“Actually that’s only two 50-basis point reductions, something that could, but probably won’t, be accomplished by year-end,” Gross said.
He made his comments on his monthly investment outlook on Pimco’s Web site.
Some see housing price declines of 10% to 15% in the next several years, according to Gross.
Pimco ultimately sees the Fed lowering rates to 1%, which has historically served as the endpoint of easing cycles, according to Gross.
Weakness in the corporate bond market and draining confidence from investors were cited as reasons for a rate cut.
Pimco is one of the largest bond fund managers with nearly $700 billion in assets.
It recently said Mohamed El-Erian would rejoin the firm as co-chief executive and co-chief investment officer, after leaving as chief executive of Harvard Management Co.
He’ll share the chief executive title with veteran Bill Thompson. And El-Erian will share the chief investment officer title with Bill Gross, Pimco’s star bond fund manager.
