Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy.
In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold.
In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion, according to the Federal Reserve.
"While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot," Gross said.
The Fed is on a course of gradual rate increases, with financial markets expecting it to approve one more rate hike this year. In addition, other central banks are pulling the reins on bond-buying and other liquidity programs aimed at injecting cash into their respective economies.
Gross charged that the adherence of central bankers to hard-and-fast rules that govern when they should tighten policy has "distorted capitalism as we once knew it, with unknown consequences lurking in the shadows of future years."
For instance, he cast doubt on the belief it takes short-term interest rates exceeding longer-term rates — a condition known in economist as an inverted yield curve — to produce a recession.