US Economy

Why the Fed will likely raise rates in June: Bill Gross

Gross: Fed will raise 25 basis points this year

The Federal Reserve will likely raise interest rates by 25 basis points sometime around June because it wants to send a message to the market that the real economy is important as well, bond guru Bill Gross told CNBC Wednesday.

"Even in the face of this low inflation, they recognize that zero percent interest rates or near-zero percent money market rates are distorting capitalism," Gross said in an interview with "Street Signs."

"The zero percent interest rates are moving money into the financial sector for arbitrage profits and very little of it is going into the real economy for investments."

However, beyond that symbolic reason, he thinks there is also a real reason for the summertime rate hike.

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"There's a necessity for savers and investors to receive a positive return on their money," Gross said, noting that current interest rates produce a negative return on money from the standpoint of inflation.

"At some point they've got to move closer to an inflation rate, a future inflation rate, in order to allow savers and therefore investors to take risk in the market."

That said, he believes the pace will the "very, very slow." Right now, the market is anticipating rates will reach 2 percent in February 2019, a notion he said he doesn't disagree with.

If that is the case, he believes the Treasury market is fairly priced.