The subprime lending situation will get worse over the next 18 months, but there's no reason for investors in the stock market to panic, Pimco founder Bill Gross told CNBC Friday.
"Not only are we seeing delinquencies and defaults, but we're seeing upward adjustments in terms of those interest rates and that will occur for the next six, 12, 18 months," Gross told "Squawk Box."
"The housing market has some more tough sledding to go in the next year and a half," he said.
But that shouldn't force investors to dump stocks, which he said are fairly valued at the moment.
"Corporate earnings are going well, the economy is doing decently, not great, we're not headed to a recession, there's nothing wrong with stocks going forward," Gross said.
No Fed to the Rescue
Gross also dismissed speculation that Thursday's sharp drop in the market would push the Federal Reserve Chairman Ben Bernanke to cut interest rates.
"I don't think (a 300-point decline) on the Dow is going to force Bernanke to cut, or even 300 more points should it happen today," he said. "Bernanke really wants to see somewhat of a decline in risk attitudes."
"That doesn't mean he wants a crash, it doesn't mean he really wants the market to go down," Gross added. "He wants a controlled, tempered type of market and we're beginning to see that."