Gross Sees Fed Raising Rates in September to Fight Distortions

By Mary Childs

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,” 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.”
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.
Futures show traders are pricing in a 44 percent
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 percent 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, Gross said in the outlook.
Instead, it’s allowed zombie companies to survive while
innovation is stifled and companies devote cash to share
buybacks.
Gross manages the $1.5 billion Janus Global Unconstrained
Bond Fund. That fund gained 0.9 percent this year, outperforming
83 percent of peers, according to data compiled by Bloomberg.
Since Gross started managing the fund on Oct. 6, it’s returned
0.4 percent.