The Federal Reserve will definitely move to ease monetary policy further, Bill Gross, Pimco’s co-founder, told CNBC’s “Closing Bell” on Thursday.
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Bill Gross, co-chief investment officer of Pacific Investment Management Co. (PIMCO)
“What the Fed(explain this)minutes told us is additional easing (explain this) might be warranted ‘fairly soon’ unless the incoming data pointed to a sustainable strengthening of the economy,” Gross said. Gross said the "sustainable strengthening" language is important. “I think we need to see months of 3 percent or better gross domestic product growth before the Fed backs off that particular provision,” he added.
When the Fed does move, Gross is expecting “a relative open-ended program in terms of size, in terms of time and in terms of what the asset classes is they buy.” He added, that being open-ended will give the Fed the flexibility to modify their posture "even in the face of a strengthening economy." (Read More:More Easing Not Needed If Growth Holds Up: Fed's Bullard.)
Gross did note the potential negative consequences of additional easing, however. “We’ve lowered interest rates to ... zero ... and they’re beginning to affect margins for financial institutions as well as pension accounts.”
The effectiveness in terms of QE going forward is less becoming less effective than what we’ve seen with the first two rounds of quantitative easing, Gross added.
If the Fed does embark on another round of quantitative easing, Gross said you want to “buy what the Fed is going to buy and buy what the Fed is going to affect.”
He said Treasury Inflation-Protected Securities and mortgages are the beneficiaries of these policies.
