Bill Gross: Fed won’t alter stimulus after job gains

Bill Gross, manager of the world’s biggest bond fund, said the larger-than-forecast increase in U.S. employment last month won’t prompt the Federal Reserve to alter the central bank’s stimulus measures.

“Bernanke and Yellen, and Dudley -- the three musketeers - - have made it obvious that even if unemployment gets to 6.5%, they are going to look around,” Pacific Investment Management Co.’s founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “They are going to look at the participation rate, they are going to look at work rate, they are going to look at productivity -- those things in combination. And if they give themselves an out, if, and here’s the critical point, if inflation is still well contained.”

Payrolls increased more than forecast in February and the jobless rate unexpectedly fell to a more than four-year low of 7.7%. Fed officials have said they will keep their benchmark lending rate near zero as long as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%. They also said during a January meeting they would keep buying $40 billion per month in mortgage bonds and $45 billion in Treasuries.

“Ultimately, wages are the key to sustainable and higher inflation,’ Gross said. “And the Fed knows that as well. It’s certainly true that wages, which are well contained at 1.5% to 2%, are the key to the Fed. And if they for some reason, which I am hard pressed to see the reason, should move up to 2.5% to 3% and threaten that threshold, that’s when the Fed becomes concerned.”

Fed Portfolio

Employment rose 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed today. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped from 7.9 percent.

Fed Chairman Ben S. Bernanke told Congress last month that it would take a “substantial improvement” in employment to end the buying. It’s the central bank third program of so-called quantitative easing, or bond buying aimed at keeping long-term rates low to stimulate the housing sector and the economy overall.

Bernanke told Congressional leaders in Washington that the central bank was maintaining its guidance that rates are likely to remain at record lows and that there was no evidence that the Fed’s unprecedented asset purchases risked sparking inflation or creating price bubbles. The Fed has kept its benchmark rate for overnight loans in a range of zero to 0.25% since December 2008.

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