October 22, 2012

Bill Gross Slams Fed ‘Merry-Go-Round’ Policy

Bond manager tweets criticism of artificial inflation of stocks and housing sector

Bill Gross (left), Liz Ann Sonders and Tyler Mathisen at Schwab Impact in 2011. Bill Gross (left), Liz Ann Sonders and Tyler Mathisen at Schwab Impact in 2011.

Bill Gross is again making waves (or tweets) ahead of the Federal Reserve’s much-anticipated statement set for later this week.

Gross, known for his flowery prose in extended outlooks he posts each month to PIMCO’s website, has nonetheless effectively leveraged the social media site to make his points.

“Gross: Fed merry-go-round: inflate stocks til 2000. Then inflate housing til 2007. Then inflate stocks til 2012. Now inflate housing again,” Gross tweets in his latest.

Criticizing the Fed for its now two-decade old policy of inflating housing and stocks, and jumping back and forth between the two, follows on other recent criticisms of the governing body made by Gross,  head of the world’s largest bond shop, which has an estimated $1.8 trillion currently in assets under management.

The meeting of the Federal Reserve scheduled for this week is unlikely to reveal any new policy prescriptions to help the struggling economy, especially after last month’s announcement of the widely-expected “QE3,” but will still be closely watched.

Gross’ colleague, PIMCO CEO Mohamed El-Erian, harshly criticized the Federal Reserve and chairman Ben Bernanke recently, saying not only are they willing to tolerate inflation but actually are trying to create it, with a “mess” left behind for their successors to clean up.

El-Erian told CNBC in September the reason is that “the risks outweigh the rewards as the central bank tries to stimulate an economy that still is foundering three years after the financial crisis recession ostensibly ended.”

As the network noted at the time, El-Erian has previously called the policy a "reverse Volcker moment," in reference to former Fed Chairman Paul Volcker, who raised rates and deliberately put the nation into recession in the early 1980s to control runaway inflation.

"Not only will they tolerate higher inflation, not only will they wish for higher inflation, but they actually may target higher inflation," El-Erian said.

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