Pacific Investment Management Co.’s Bill Gross said lower-than-forecast U.S. employment growth will move the Federal Reserve closer to more quantitative easing.
Policy makers will give “strong hints” or provide “positive action” at next week’s Federal Open Market Committee meeting, Gross, who runs the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. The Fed will likely ease further through “open-ended” purchases of Treasuries and mortgages and extend its pledge to keep interest rates low into 2015, he said.
Payrolls rose a less-than-projected 96,000 jobs in August and the unemployment rate declined as more Americans left the labor force, indicating the employment market is stagnating. Fed Chairman Ben S. Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming, the central bank will provide additional policy stimulus as needed to promote a stronger economic recovery.
The Fed has expanded its balance sheet with two rounds of quantitative easing, as the bond buying has become known. In the first, which ran from 2008 to 2010, the central bank bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, from 2010 to 2011, the Fed purchased $600 billion of Treasuries.
Policy makers have also held their benchmark overnight target rate at zero to 0.25 percent since December 2008 and have said it will remain there until at least late 2014.
“What central banks are trying to do over a longer-term basis, on a weekly basis, on a monthly-basis, is dampen volatility,” Gross said. “They basically want to make investors believe that things aren’t going to change much going forward in terms of yield.”
Pimco’s founder and co-chief investment officer said that investors should try to take advantage of central bank policies and not fight the Fed or European Central Bank, which has endorsed buying one- to three-year sovereign debt of nations such as Spain to keep borrowing costs low.
“Look at it as a surfer would, you want to get on top of that wave and you want to ride it as long as possible and take the force of that wave,” he said. “You sell volatility via mortgages, you sell volatility by capturing the roll down from five to four to three years because things simply don’t change.”