Friday’s jobs report should give the Federal Reserve a green light to raise interest rates, Bill Gross says.
Gross told Bloomberg Radio and Television that there was a “100% chance” the Fed would raise interest rates in December after jobs surged.
“It’s almost 100% that the yellow light changes in December to bright green,” said Gross, the ex-PIMCO chief investment officer who now manages the Janus Global Unconstrained Bond Fund for Janus Capital.
The economy added 271,000 jobs in October, and the unemployment rate dipped to 5%, from 5.1% in September.
Gross thinks the market is “anticipating a rather quick increase” of 25 basis points.
“I think since before the data the chances in the market of a December hike was about 60% or so,” Gross said. “I think today’s report is going to tilt investors towards the reality of a Fed increase in rates for the first time since 2004.”
With the news of a strong jobs report, Gross does think there could be a problem if everybody reverses a seven-year trade right away.
“Although the Fed has prepared markets for this, I think the markets may not be prepared because hedge funds and even retail investors will look at this headline and use ETFs and maybe even mutual funds as an exit vehicle,” Gross told Bloomberg. “And they all can’t get out at the same time. So it will be interesting to see today and obviously early next week in terms of how quickly they want to hit the exits.”
Gross thinks the dollar strength could be something to fear, but that the Fed may not be taking that into consideration.