The Federal Reserve will have to cut interest rates to 3% or lower as housing prices remain in a slump, said Bill Gross, chief investment officer of Newport Beach-based Pacific Investment Management Co.
Gross said during a CNBC interview the Federal Reserve was more concerned with a slowing economy and employment than with inflation.
“The economy is slowing down substantially,” Gross said.
The housing market slowdown will continue into 2008, which will require the Federal Reserve to cut short-term rates further, he said.
The economy likely went into recession in December, and a slowdown could last four to six months, Gross previously had said.
In early 2007, Gross became bearish on real estate, saying it’s collapse would affect the economy.
While the market initially worked against his call, he was eventually redeemed.
Gross’s Total Return fund ended 2007 with a 9.1% gain, beating 99% of the competition.
Pimco is one of the world’s largest bond managers with more than $700 billion in assets. It is majority owned by Munich-based insurer, Allianz AG.
