Janus Henderson portfolio manager Bill Gross. (Photo: Jim Tweedie) Janus Henderson portfolio manager Bill Gross. (Photo: Jim Tweedie)

Portfolio manager Bill Gross, who has repeatedly criticized the Federal Reserve for keeping interest rates too low, now recommends that the Fed refrain from raising rates too aggressively.

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Just one day after the U.S. central bank increased the federal funds rate 25 basis points to a range of 1.5%-1.75%, Gross writes in his latest outlook for Janus Henderson that “U.S. and global economies are too highly leveraged to stand more than a 2% fed funds level in a 2% inflationary world.”

He continues: “If more than 2%, a stronger dollar would affect emerging market growth and lead to perhaps premature tightening on the part of the [European Central Bank] and other developed market central banks … 2% fed funds in a 2% inflationary world is the current limit in my opinion.”

(Related: Chances Rise for 4th Fed Rate Hike in 2018)

That’s not what Fed officials suggested in their policy statement and “dot plot” projections for economic growth and inflation. They indicated two or three additional rate hikes this year, which would bump up the fed funds rate to a range of 2%-2.25% or 2.25%-2.50% by year-end.

“The Fed’s purported three to four hikes this year beginning in March are likely exaggerated,” writes Gross, the portfolio manager of the Global Unconstrained Bond and Total Return strategies at Janus Henderson.

(Related: Bill Gross: Bear Market in Bonds Is Already Here)

Gross notes that he doesn’t support low rates but but believes, along with Minneapolis Fed President Neel Kashkari (he erroneously identifies him as a governor in his outlook), that the “excesses” in financial systems due to longtime low rates “cannot be unwound quickly by liquidating assets” but gradually with higher rates reflecting the influence of private sources, presumably businesses, rather than central banks.

In his latest outlook, Gross also forecasts that the yield on the 10-year U.S. Treasury note “should fluctuate around 3% for most of 2018 … ”That level should ultimately force German Bunds and UK Gilts to higher yields.”

The 10-year Treasury is currently yielding about 2.8%, down from its recent closing high of 2.91% on Wednesday, when the Fed hiked rates for the first time this year. It was the first policy meeting presided over by the Fed’s new chairman, Jerome Powell.