The Federal Reserve could find itself challenged to raise U.S. interest rates this year as global growth remains sluggish and inflation subdued, closely watched bond investor Bill Gross said on Monday, according to Reuters.
“With the dollar strengthening and oil prices declining, it is hard to see even the Fed raising short rates until late in 2015, if at all, ” said Gross, who oversees the Janus Global Unconstrained Bond Fund, in a collection of investment views posted online by Janus Capital Group, the report said.
With global economies struggling, Gross said, “it’s going to be very difficult for the Fed as the major central bank for the global reserve currency to raise interest rates to historical levels.”
That could keep the Fed’s major interest rate capped at around 1 to 2 percent, Gross said, keeping yields on the benchmark 10-year U.S. Treasury note not far from its “seemingly ridiculous” current yields, Reuters said.
That note last traded at a yield of 2.0476 percent on Monday morning.
“Interest rates in almost all developed countries will remain near the zero bound, as well, ” Gross added, according to the report.
Gross quit Pimco, the bond firm he helped co-found, in September, shocking markets as he moved to smaller rival Janus Capital Group. Sometimes called the bond king for his decades-long track record in fixed income, Gross remains widely followed, Reuters said.
On Monday Gross sounded a cautionary note on global growth.
“Aside from the United States, the growth outlook for developed countries and many emerging ones is subpar, ” he said. “Do not look, therefore, for economic growth to be the magic elixir for 2015.”
Because of potential volatility, he said, “investors should be flexible and consider more liquid securities. Fixed income with shorter maturities is one starting place.”
The Janus Global Unconstrained Bond Fund, which Gross started managing in October, attracted an estimated $770 million in November, bringing its assets to more than $1.2 billion, according to Morningstar data, Reuters said.
The Federal Reserve has not raised benchmark interest rates since 2006, instead slashing them to near zero to boost growth in the world’s largest economy during the financial crisis. Last month Fed policymakers signaled that a rate hike could be coming this year, the report said.
But Gross on Monday suggested higher markets will require “the potion of monetary policy” in 2015. Yet much of the gains from such loose policy could already be priced into markets, he added, according to Reuters.
“Be prepared for low returns in almost all asset categories, ” Gross said.
Meanwhile, outflows from the giant Pimco Total Return bond fund, formerly managed by Gross, have been running at around $20 billion per month. The fund fell to around $143 billion in assets, less than half of its peak of $293 billion in June 2013. Gross left Pimco for Janus Capital Management last September, Citywire.co.uk said.
Pimco Total Return’s performance has been good over the last year, returning 3.6% and ranking 133rd out of 977 tracked in the Citywire Bonds – Global sector, the website said.