Billionaire Bill Gross says a disappointing jobs report won’t dissuade the Federal Reserve from raising interest rates by September.
Why? Because U.S. central bankers can’t wait to normalize monetary policy after keeping benchmark borrowing costs near zero since December 2008.
“They want to get off the dime,” Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said in a Bloomberg Television interview Friday. “They want to get off zero, if only to prove that they don’t have to stay at zero for a long, long time.”
Gross’s view contrasts with a market that’s now putting the odds of a rate increase in September at 35 percent, down from a 39 percent likelihood on Thursday, based on trading in fed funds futures. Odds of a June liftoff are 10 percent, the trading implies.
The Fed will lift its benchmark rate by 0.5 percentage point per year, bringing it to 2 percent by 2018, according to Gross, 70, who had been the chief investment officer at Pacific Investment Management Co. until his abrupt departure in September. That would still be about half the central bank’s own forecast of 3.75 percent.
Treasuries surged Friday, sending yields to two-month lows, after a report showed the economy added the fewest jobs since December 2013. Yields on benchmark 10-year notes fell 0.07 percentage point to 1.84 percent, according to Bloomberg Bond Trader prices.
“Obviously, the economy’s cooling,” said Gross, who earned his reputation as the bond king by building Pimco into a $2 trillion money manager at its peak, with some of the industry’s highest returns.
He said he still sees the Fed raising rates as soon as August and that Janus has been buying shorter-term Treasuries with an average maturity of about four years, while selling short German sovereign debt that’s been trading with record low yields.
Gross’s Pimco Total Return Bond Fund, which he managed until he left, ballooned to $293 billion in April 2013 before performance faltered and clients started to pull money amid concern that interest rates would rise.