Bill Gross says Fed must be 'very careful' in raising rates

Bill Gross calls for caution as the Fed looks toward raising interest rates. (AP Photo/Pablo Martinez Monsivais, File) Bill Gross calls for caution as the Fed looks toward raising interest rates. (AP Photo/Pablo Martinez Monsivais, File)

(Bloomberg) -- Bill Gross, the former manager of the world’s largest bond fund, said the U.S. Federal Reserve must be “very careful in their moves” and needs to see a nominal growth rate of 4 percent to 5 percent before raising interest rates.

All central banks have to be cautious, but the U.S. especially, because “they’re the first one to get off the dime,” the former chief investment officer of Pacific Investment Management Co. said in a Bloomberg Radio interview on Friday. “This is a highly levered economy buffered by structural headwinds,” said Gross, who left Newport Beach, California-based Pimco in September to join Janus Capital Group Inc.

Gross said a Labor Department report report showing payrolls advancing by more than forecast and revisions upward for November and December will help the Fed slowly and carefully raise rates this year. Sustained employment gains will probably help assure policy makers that the expansion is well-rooted and can withstand an increase in borrowing costs.

Gross expressed caution over the nature of the jobs that have been created over the past decade as real wages over the period declined.

“We can create jobs, but can we create profitable jobs and productive jobs that pay money to elevate labor back into the old middle class?” asked Gross, 70. “I don’t think we’ve done that and that’s what we need to do.”

Commodity prices

Wages need to increase at least 3 percent to help offset the impact of lower commodity prices and get to the Fed’s inflation target of 2 percent, he said.

Gross earned his reputation by building Pimco into a $2 trillion money manager at its peak with some of the industry’s highest returns. He left the firm he co-founded in 1971 to join Denver-based Janus after losing a power struggle with management and some of his deputies.

The $1.4 billion Janus Global Unconstrained Bond Fund, which Gross has run since Oct. 6, has declined 0.29 percent since then through February 5th, beating 55 percent of comparable funds, according to data from Chicago-based research firm Morningstar Inc.

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