Bill Gross said the Federal Reserve will raise interest rates in September because the central bank increasingly realizes that loose monetary policy isn't helping the global economy.
“The Fed begins to recognize that zero percent interest rates increasingly have negative, as well as positive consequences,” Mr. Gross
wrote in an investment outlook Thursday for Denver-based Janus
Capital Group Inc. “Low interest rates are not the cure — they are part of the problem.”
Mr. Gross, who joined Janus in September after abruptly leaving Pacific Investment Management Co., said in January that the Fed had to raise rates this year to end distortions that six years of near-zero borrowing costs have brought to financial markets. Increases will be slow to avoid startling markets that have gotten used to cheap money, said the money manager, who used to run the world's largest bond fund.
44% PROBABILITY
Futures show traders are pricing in a 44% probability that the Fed raises rates at or before their September meeting. The bank has kept the benchmark federal funds rate at a record low of zero to 0.25% since December 2008, the midst of the worst recession since the Great Depression.
Lowering the cost of money “closer and closer to zero” hasn't had the intended effect of encouraging spending and investment in the real economy, Mr. Gross said in the outlook. Instead, it's allowed zombie companies to survive while innovation is stifled and companies devote cash to share buybacks.
(More: Janus Capital inflows slow but CEO Weil points to positive trend)
Mr. Gross manages the $1.5 billion Janus Global Unconstrained Bond Fund. That fund has gained 0.9% this year, outperforming 83% of peers, according to data compiled by Bloomberg. Since Mr. Gross started managing the fund on Oct. 6, it's returned 0.4%.
