The Federal Reserve would have to take lower oil prices “into consideration,” Gross said today in a Bloomberg Surveillance interview with Tom Keene. “I think that yes, it moves towards a dovish stance relative to what the market expected a few days ago.”
Benchmark U.S. oil prices have fallen below $60 a barrel, extending losses today as the International Energy Agency cut its global demand forecast for the fourth time in five months. Gross said with inflation showing no signs of approaching the Fed’s 2 percent target, policy makers won’t be in a hurry to raise interest rates.
“Why would they start to eliminate language that talked about an extensive period of time when the U.S. itself is, not deflating but disinflating, and certainly not moving in the direction of its 2 percent target,” Gross said.
The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries, said Gross, who co-founded Pacific Investment Management Co. in 1971 and left the firm in September to run an unconstrained bond fund at Janus.
“When levered money moves and tries to seek a safe haven, basically you have violent price movements,” Gross said, adding there is “very little liquidity” in the corporate bond markets, especially in high-yield debt. “Everyone is trying to squeeze through a very small door.”
With the U.S. economy still “highly levered” and dependent on cheap financing, the equilibrium interest rate may be close to where rates are now, Gross said.
“I call it the new natural, Pimco called it the new neutral,” Gross said. “I think its closer to zero percent real and maybe even lower, which is close to where we are now.”
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