MARKETS SPECTATOR: Pimco's Fed swipe

Inflationary pressures are minimal and the US economy faces bigger hurdles than the Federal Reserve realises, Pimco founder Bill Gross says.

Bill Gross doesn’t mince words. The co-chief investment officer of Pimco, which manages $2.04 trillion, says US Federal Reserve chairman Ben Bernanke is too optimistic about the prospects of the world’s largest economy.

“If 7 per cent unemployment is tapering’s final port of call, we simply think that we’re much further away than the Fed’s compass would suggest,” Gross writes in an entertaining nautical themed note. “We argue for structural headwinds, demographic, globalization, and technology influences, that have had and will continue to have dampening effects on domestic and global growth”. 

The Pimco founder says the Fed is too oriented on cyclical data, too focused on housing and car sales. Still, the US economy is not “sinking,” says Gross, nor, he adds, are global economies.

The anemic economic growth will mean that Gross doesn’t expect the Fed funds rate to increase until at least the middle of 2015 even if inflation reaches the central bank’s 2 per cent target or higher. “I wonder if we can get there in this decade to tell you the truth,” Gross says.