Bill Gross, manager of the world’s biggest bond fund, said the pace of payroll growth in November signals there a 50% chance the Federal Reserve will begin tapering its monthly bond purchases this month.
“It’s at least 50-50 now,” Pacific Investment Management Co.’s Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “There was some logic for a January starting point, but it’s clear the Fed wants out. The Fed still has to be careful even when they begin to taper,” given the recent pace of growth has produced growth at only about 2% so far, he said.
Employers added more workers than forecast in November and the jobless rate dropped to a five-year low of 7%, showing further progress in the labor market that will help provide a spark for the U.S. economy.
The 203,000 increase in payrolls followed a revised 200,000 advance in October, the strongest back-to-back gain since February-March, Labor Department figures showed today in Washington. The median forecast of 89 economists surveyed by Bloomberg called for a 185,000 advance.
Fed policy makers cut rates to a record low as the financial crisis mounted in 2008 and vowed to keep them there until the economy and employment show sustained signs of recovery. The central bank, which has kept its benchmark overnight bank lending rate in a range of zero to 0.25% since December 2008, has said it will maintain that rate while unemployment held above 6.5% and inflation stayed below 2.5%.
Central bank policy makers will pare the monthly pace of asset buying to $70 billion from $85 billion at their March 18-19 meeting, according to the median of 40 responses in a Bloomberg survey in October.
“Most people on the FOMC are worried about the implications for being experimental for so long,” Mohamed El- Erian, who serve as Pimco’s chief executive and as co-chief investment officer with Gross, said on Bloomberg Television’s “In the Loop” with Betty Liu. “When you get such a strong report, it makes the normalization process easier.”
U.S. 10-year yields reaching the highest since September, as the jobs data followed other reports this week showing initial claims for jobless benefits unexpectedly fell last week, gross domestic product grew more in the third quarter than first estimated, and manufacturing increased last month.
Pimco remains focused on buying debt with shorter maturities, “which are less susceptible to higher interest rates,” said Gross in the interview. The two-year yield has been “relatively stable for a long time.”
The Fed will likely keep its target rate for overnight funds between banks, which is in a range of zero to 0.25%, until 2016, Gross predicted several times over the last month.
The performance of the $244 billion Total Return Fund over the past three years puts it ahead of 72% of similarly managed funds, gaining 4.2% on average over the period, according to data compiled by Bloomberg.
Pimco, a unit of the Munich-based insurer Allianz SE, managed over $2 trillion in assets.