PIMCO's Gross: Fed to Keep Interest Rates Low for 2-3 Years

Posted Aug 6th 2010 4:30PM by Joseph Lazzaro
Filed under: Forecasts, Employees, Federal Reserve

Will mortgage rates, currently at/near generational lows, and bond rates, head lower in the quarters ahead?

That could be the case if one of the world's premiere rate experts is correct. PIMCO's Bill Gross said the U.S. Federal Reserve is unlikely to raise key, short-term interest rates for two to three years, Bloomberg News reported Friday.

"When you analyze that portion of the curve [2-year Treasury notes and longer], it says the Fed is on hold for a long, long time," Gross told Bloomberg News said Friday.

Gross also called a full employment rate of 4.5% "a fiction" and said he sees a new-normal full employment rate at 7%.

The U.S. economy's private sector added just 71,000 jobs in July, the U.S. Labor Department announced Friday. Overall, the world's largest economy lost 131,000 jobs in July, while the unemployment rate held steady at 7.5%. The world's largest economy is now about one year into the economic expansion and it's still not creating the 150,000 to 200,000 new jobs per month needed to lower unemployment and help the U.S. recovery advance to a self-sustaining expansion.

Monetary/Economic Analysis: A Fed on hold for 2 to 3 years seems like an awful long time, but Gross gets the benefit of the doubt here. What is clear now is that a confluence of forces is reducing employment growth and GDP growth expectations, and that underperformance by the economy -- what the Fed calls the "output gap," will likely encourage the central bank to keep short-term interest rates low. The Fed also may deploy additional -- and creative -- quantitative measures to increase demand.

That confluence of GDP-reducing factors include: De-leveraging, modest wage gains in certain job segments (and wage stagnation in others), an aging population, an overbuild in the housing sector, overconsumption, an inadequate savings rate (2000-2008), and too much public revenue dedicated to defense and health care services (prior to health care reform).

Tags: Bill Gross, featured, Federal Reserve, interest rates, inthenews

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Reader Comments (Page 1 of 1)

8-07-2010 @ 8:44AM

Eli Jones said...

"THESE DEMOCRAT POLITICIANS VOTED AGAINST AUDITING THE FED. LOOK AT THEIR NAMES AND SEE WHICH ONES REPRESENT YOUR STATE SO YOU CAN VOTE THEM OUT IN NOVEMBER" /////////////////////////////
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H.R. 1207: Federal Reserve Transparency Act of 2009
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The following U.S. representatives cosponsored H.R. 1207 but voted against Auditing the Fed on a motion to return the Dodd-Frank Financial Reform bill to committee and add back in the thorough Audit,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Alabama
Bobby Bright – AL-2
Arizona
Ed Pastor – AZ-4
Raul Grijalva – AZ-7
Arkansas
Marion Berry – AR-1
Vic Snyder – AR-2
California
Jackie Speier – CA-12
Pete Stark – CA-13
Zoe Lofgren – CA-16
Sam Farr – CA-17
Brad Sherman – CA-27
Adam Schiff – CA-29
Judy Chu – CA-32
Jane Harman – CA-36
Laura Richardson – CA-37
Bob Filner – CA-51
Colorado
Jared Polis – CO-2
John Salazar – CO-3
Ed Perlmutter – CO-7
Connecticut
Joe Courtney – CT-2
Christopher Murphy – CT-5
Florida
Allen Boyd – FL-2
Corrine Brown – FL-3
Suzanne Kosmas – FL-24
Georgia
Sanford Bishop – GA-2
Hank Johnson – GA-4
John Lewis – GA-5
John Barrow – GA-12
David Scott – GA-13
Hawaii
Mazie Hirono – HI-2
Illinois
Jesse Jackson, Jr. – IL-2
Mike Quigley – IL-5
Danny Davis – IL-7
Janice Schakowsky – IL-9
Deborah Halvorson – IL-11
Phil Hare – IL-17
Indiana
Peter Visclosky – IN-1
Baron Hill – IN-9
Iowa
Bruce Braley – IA-1
David Loebsack – IA-2
Leonard Boswell – IA-3
Kentucky
John Yarmuth – KY-3
Ben Chandler – KY-6
Louisiana
Charlie Melancon – LA-3
Maine
Chellie Pingree – ME-1
Michael Michaud – ME-2
Maryland
C. A. Dutch Ruppersberger – MD-2
John Sarbanes – MD-3
Donna Edwards – MD-4
Massachusetts
James McGovern – MA-3
John Tierney – MA-6
Bill Delahunt – MA-10
Michigan
Dale Kildee – MI-5
Mark Schauer – MI-7
Carolyn Kilpatrick – MI-13
John Conyers – MI-14
Minnesota
Timothy Walz – MN-1
Collin Peterson – MN-7
James Oberstar – MN-8
Mississippi
Bennie Thompson – MS-2
Missouri
William Lacy Clay – MO-1
Nevada
Shelley Berkley – NV-1
New Hampshire
Carol Shea-Porter – NH-1
New Jersey
John Adler – NJ-3
Bill Pascrell – NJ-8
Steven Rothman – NJ-9
Donald Payne – NJ-10

8-08-2010 @ 5:52AM

jwalton333 said...

It is true that we have our selves in a situation where there are not a lot of good options. It will take very educated officials a few years of heavy lifting to work us out of this jam. Even then, minor missteps could be problematic. The largely uneducated and unsophisticated American voter holds the seeds to our destruction. Their naieve desire to get back to the 'good old days' over night, is the problem. The 'tea bag' mentality should be seen for what it is: ignorance grabbing at the wheel. Just brecause ignorance got us in this mess doesn't mean that ignorance can get us out. Ben has studied his whole life for this situation.....we need to have some faith in him and Obama.....you won't get anyone brighter. JW