- Whether or not the Fed leads the U.S. economy into recession depends on whether it sticks to its fed funds forecast, Bill Gross told CNBC.
- On Wednesday, the Fed reduced its long-run target for the fed funds rate to 2.8 percent.
- Gross warned the Fed should be "careful" because it is a highly-levered economy.
Whether or not the Federal Reserve leads the U.S. economy into recession depends on whether or not it sticks to its forecast for the federal funds rate, noted bond investor Bill Gross told CNBC on Wednesday.
"If they followed their plan … which basically projects over the next two years for fed funds to reach 2.8 [percent] or even 3 percent, a 170 basis point increase, then yes a recession is possible," the Janus Henderson Investors portfolio manager said in an interview with "Power Lunch."
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On Wednesday, the central bank reduced its long-run target for the fed funds rate. For years, officials have indicated the rate would eventually get to 3 percent. However, the forecast was cut to 2.8 percent.
The Fed also announced it will begin to roll off its $4.5 trillion balance sheet in October and did not raise interest rates. However, it indicated one more hike is likely this year and forecast three increases in 2018 and two in 2019.
Gross warned about the potential danger of looming interest rate increases in his July newsletter, noting that raising interest rates will increase the cost of short-term debt that corporations and individuals hold.
"They just have to be very careful because it's a highly levered U.S. economy. It's a highly levered global economy and currencies and the dollar and other related assets like gold will move substantially if the Fed overstates its case," Gross said Wednesday.
— CNBC's Jeff Cox contributed to this report.