BlackRock Inc., the world’s biggest asset manager, says the Federal Reserve will refrain from conducting a third round of debt purchases as the economy grows.
The outlook contrasts with that of Bill Gross, who runs the world’s largest bond fund at Pacific Investment Management Co. and says the Fed may buy several more times. The central bank has purchased $2.3 trillion of debt in two rounds of quantitative easing known as QE1 and QE2 as it seeks to support the world’s biggest economy. Chairman Ben S. Bernanke said Jan. 25 that he’s considering another program of purchases.
“QE3 will be seen only if the U.S. economy flags,” Bob Doll, chief equity strategist at BlackRock, which oversees $3.51 trillion, said today on Bloomberg Television’s “First Up” with Susan Li. “Ben Bernanke will use it if we have a rainy day and only then,” said Doll, who is based in Princeton, New Jersey.
Gross wrote that a third, fourth and fifth round of easing “lie ahead,” in a Twitter post last week.
Increasing strength in the U.S. economy is damping the need for further debt purchases, with the pace of expansion accelerating in the fourth quarter to 2.8 percent, the fastest since the three-month period ended June 2010, from 1.8 percent the previous quarter. The growth still isn’t strong enough to push down an unemployment rate that has been at 8.5 percent or higher for 34 months.
“As long as the U.S. economy’s growing 2 1/2, 3 percent and unemployment in the U.S. is falling, that’s not an emergency,” Doll said. “QE is saved for emergencies.”
The Fed also said last week that it plans to keep its benchmark interest rate near zero until at least the end of 2014.
Treasuries rallied following the announcements, with the five-year yield falling to a record 0.7157 percent yesterday.
Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 1.86 percent today as of 6:31 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 fell 1/8, or $1.25 per $1,000 face amount, to 101 1/4.
The rate slid to 1.81 percent yesterday, approaching the record low of 1.67 percent set Sept. 23.
Gross, who runs the $244 billion Pimco Total Return Fund in Newport Beach, California, said in an interview Jan. 6 that the strengthening U.S. employment market still faces a “tough slog.”