PIMCO’s Gross, Roubini Say QE3 Is Coming in Wake of Weak Job Numbers

Roubini sees growth slowing in fourth quarter

Employment figures were less than expected for August, disappointing investors and increasing the likelihood the Federal Reserve will take further action to spur economic growth. Payrolls added 96,000 jobs for the month, lower than the average of 139,000 since the beginning of the year and 153,000 per month in 2011. Although the unemployment rate fell from 8.3% to 8.1%, most of the decrease came from job-seekers dropping their search altogether.

Bill Gross, co-CIO, PIMCO (Photo: AP)In the least kept secret in investing, Bill Gross, co-CIO of PIMCO, said the numbers will move the Fed to initiate some sort of quantitative easing, commonly known as QE3.  

Policy makers will give “strong hints” or provide “positive action” at next week’s Federal Open Market Committee meeting, Gross said in a radio interview on Friday with “Bloomberg Surveillance.” The Fed will likely ease further through “open-ended” purchases of Treasuries and mortgages and extend its pledge to keep interest rates low into 2015, he said.

Gross was joined by economist Nouriel Roubini, known for his gloomy predictions, who told CNBC Friday that he is “still pessimistic on the outlook for the U.S.—and that he expects a further round of quantitative easing from the Federal Reserve in December.”

Nouriel Roubini (Photo: AP)"If today's jobs number is OK, then the Fed can wait to do QE3," Roubini (right) told the network at the Ambrosetti Forum in Lake Como, Italy, prior to a the release of the employment report.

"Yet the economy is weak enough and the unemployment rate weak enough that the Fed is going to do QE3 eventually," Roubini, founder of Roubini Global Economics, said. "By the fourth quarter, with the fiscal cliff coming and firms becoming more cautious, capital spending is slowing down and growth will be not even 2%.

"Job creation might be around 100,000 or slightly higher for the next few months, but there's not going to be any significant reduction in the unemployment rate."

He added that with gross domestic product growth of around 1% to 2%, the fiscal drag may weigh down the economy.

According to CNBC, Roubini predicted growth of close to 2% for the third quarter, but believes that it will then slow in the last three months of 2012.

"If you get the fiscal drag as growth slows, you're close to zero growth next year,” he said. "This implies that by December the Fed is going to do a third round of QE3."

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