Fed Is Buying Washington Time: Pimco's Kashkari

Neel Kashkari
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Neel Kashkari

The U.S. Federal Reserve's bond-purchasing program and low interest rate policies are buying Washington time to solve the nation's debt crisis, said Pimco's Head of Global Equities Neel Kashkari.

But he told CNBC's "Squawk Box" on Thursday that President Barack Obama and Republican leaders need to compromise on the "fiscal cliff" or Fed Chairman Ben Bernanke's actions to help the economy and the stock market will have been for nothing. (Read more: Fed to Keep Easing, Sets Target for Rates )

"Bernanke should be credited for being bold and experimenting," but the Fed's moves won't lead to real economic growth on their own, Kashkari said. "If leaders in Washington don't take over, then this is going to lead to an inflationary outcome."

He also warned that failure to reach an agreement to deal with the fiscal cliff's new year tax increases and spending cuts would send the country back into recession.

As for the markets, that outcome would cause increased volatility and "probably" a pullback in stocks — a scenario that could actually force Washington's hand, said Kashkari. "That may put more pressure on the Congress and the president to come together," he said.

In the face of all this uncertainty, he predicted that investors are in for a rough ride. "We think returns across all assets are going to be lower going forward than we've been used to in the past," Kashkari said.

Kashkari said that Pimco is selectively buying stocks on the thought that "equities should do better than bonds over the intermediate term."

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC