Billionaire investor Bill Gross listens during the Milken Institute Global Conference in Beverly Hills, California, US, May 3, 2017.
Lucy Nicholson | Reuters
Bill Gross, the one-time bond king and co-founder of fixed-income giant Pimco, said he sees the potential for inflation to stagnate in the economy and he won’t buy stocks aggressively right now. hour.
The 77-year-old investor believes that while the Federal Reserve is aiming to counter rising inflationary pressures, it is also concerned that too many rate hikes could put too much downward pressure on the economy. asset prices, causing turmoil in financial markets.
“I think they’re constrained on what they can do, they’re way too low. And inflation is so high right now on a historical basis that it’s going to be very difficult to raise rates too much,” Gross said. Thursday on CNBC. “Worldwide Exchange” in an interview with Brian Sullivan.
“And I say it simply from the point of view of a realistic assumption that the stock market has been driven, in part, by perhaps 30% to 40%, by lower interest rates, and especially by lower interest rates. And to the point where you’re now increasing them even by 50, by 100 to 150 basis points… which has a significant impact on the financial discount on forward-flow income, so I think they have to be very careful,” said Gross.
If global central banks get stuck in a world of low interest rates, that could lead to persistent inflation combined with a global recession, an environment dubbed stagflation, Gross said.
“It probably means inflation stagnates. And, you know, inflation is above 3% to 4% for a while,” Gross said.
Consumer prices rose 7.5% from a year ago in January, and the Fed’s preferred measure of inflation showed the biggest gain in 12 months since 1983.
Fed President Jerome Powell said on Wednesday that he still sees a series of 1/4 percentage point gains coming, but noted that the Russia-Ukraine war has injected uncertainty into the outlook.
According to CME data, markets fully priced in the rate hike at the March 15-16 meeting but have lowered expectations for the rest of the year since the Ukraine war began.
Traders are currently pricing in 5 quarter percent increments that will bring the benchmark federal funds rate from its current range of 0%-0.25% to 1.25%-1.5%.
Gross said he chooses to be a conservative stock picker, adding that he owns numerous pipelines and tax-exempt partnerships.
“I wouldn’t be a stock buyer here. I’m simply a cautious investor,” Gross said. “There are ways to get around this in terms of making a decent profit without buying stocks and taking that risk outright, or selling bonds, which we’ve seen over the past few weeks. There’s also a significant risk.”
Gross on Thursday released his memoir “I’m Still Standing: Bond King Bill Gross and the PIMCO Express.” This investor managed Pimco’s Total Return Fund before leaving to join Janus Henderson in 2014.
