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Dec.12

3:24 PM ET

Tuesday, 12 Dec 2006

PIMCO's Gross: Bull Market Will Continue

Posted By:Lee Brodie

Topics:Treasuries | Ben Bernanke | Interest Rates | Federal Reserve

Today, the Fed made no change in interest rates—again. How should bond investors react to the decision? Erin Burnett had Bill Gross, the nation's largest bond fund manager, on "Street Signs" to find out. She also talked with Ken Volpert, the portfolio manager for Vanguard's Total Bond Market Index. It's the country's largest bond index fund and just hit the $40 billion mark this month.

Gross is the founder and chief investment officer at PIMCO. He manages $100 billion in total assets. According to him, "We still have a way to go in this bull market. And [the future] depends on cooling in housing and in the consumption area. That’s the vital link. To the extent that housing slows down – fine. But to the extent that housing slows down and [drags down] consumers' willingness to keep on consuming - that’s the ultimate key for the Fed on lowering interest rates."

Gross added, "I think the Fed probably won’t lower rates until late in the first quarter, maybe second quarter, of '07. I see a weak economy in the face of this housing market."

Ken Volpert is more middle of the road. "We're expecting core inflation to decline toward the 2% level," he said. "But that assumes that GDP growth stays below trend. If continued weakness in housing keeps GDP growth at 2% or lower, there could be an impact on consumption."

Volpert also said, "If the housing market bottoms out or just stays even, the rest of the market is doing pretty well, so we could get growth back up. That would trigger [inflation] concerns from the Fed."