Bond manager Bill Gross predicts that the U.S. Federal Reserve will raise interest rates once or twice in 2016, according to an interview in Barron's.

Gross, who is the manager of the Janus Global Unconstrained Bond Fund, thinks the U.S. central bank will hike rates again this year “as long as the stock market permits it,” he said.

“They have to normalize interest rates over a period of two, three, four years, or the domestic and global economy won’t function. In today’s world, normalization would mean a 2% fed-funds rate, a 3.5% yield on the 10-year bond, and a 4.5% mortgage rate. Would this create some pain? Of course. Housing prices probably would stop rising, and might fall a bit. The Fed has to move gradually,” he said.

Meanwhile, he doesn’t see a recession. “ I see very slow growth. In the U.S., instead of 3% economic growth, we have 2%. In euroland, instead of 2%, growth is 1%-plus. In Japan, they hope for anything above zero,” he said.

“What governments want, and what central banks are trying to do, is produce, in addition to minimal growth, a semblance of inflation. Inflating is one way to get out from under all the debt that has been accumulated. It isn’t working, because with interest rates at zero, companies and individual savers sense the futility of taking on risk. In this case, the system sort of grinds to a halt.”

He also told Barron's that he does not expect U.S. Treasury yields, which are currently around 1.7 percent, to change dramatically this year.

The 71-year-old portfolio manager said he sees investment opportunities in merger arbitrage situations, such as Berkshire Hathaway's acquisition of Precision Castparts last year or Anheuser Busch InBev's planned acquisition of rival SABMiller.

Additionally, Gross said he likes closed-end funds such as the Nuveen Preferred Income Opportunities Fund and the Duff & Phelps Global Utility Income Fund.

“Another example of letting others borrow for you is Annaly Capital Management [NLY]. Annaly and American Capital Agency [AGNC] are bank-like real estate investment trusts without a bank infrastructure. Annaly is levered four to six times—less than banks, which are levered eight to nine times—and invests in government-guaranteed mortgages. It borrows money in the overnight repo [repurchase agreement] market. It yields about 11% because of leverage, not risky assets. The concept, again, is letting corporations borrow for you to produce a return higher than the 1% to 2% return the bond market gives you today.” he said.