Despite some arguments on Wednesday that the upward revision of growth in the second quarter would table the Federal Reserve’s plan for another round of quantitative easing, Bill Gross of PIMCO says it will happen regardless.
Gross said “unemployment is still above 8% and it’s obvious that the Fed isn’t comfortable, nor is the nation or the economy with 8% unemployment going forward,” but that “Ben Bernanke would agree that the next quantitative ease will produce limited results.”
Gross on what he expects to hear from Bernanke in Jackson Hole on Friday:
“It is a conundrum, so to speak, to use the words of another Fed chairman. It could be a relatively snoozy type of speech in which the title of his speech is monetary policy since the crisis of 2008. We may just get a history of what he has done as opposed to hints of what he will do. I suspect he will substantiate what we read in the Fed minutes from their August meeting, and that will be hints of quantitative easing should there be a lack of sustainable economic growth. And he and members of the Fed did not define that. I would suspect, unless the economy is growing at 3% plus for several quarters, we will see quantitative easing relatively soon.”
On why the Fed would be willing to ease when the economy is seeing some glimmers of hope:
“They have a dual mandate. One of the mandates is inflation, and inflation is actually below their 2% target, and we should look from that standpoint alone as to additional easing to get it back up to 2%. And secondly, the mandate is in terms of economic growth, which in turn is connected to unemployment. Unemployment is still above 8%, and it’s obvious that the fed is not comfortable, nor is the economy and the nation comfortable with 8% unemployment going forward. until you see that number in the low 7s and until you see inflation exceeding above 2%, the fed is going to do what they have done in the past two to three years and that is to ease quantitatively.”