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 percent, they are going to look around,” Pacific Investment Management Co.’s founder Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
“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 7.7 percent. Fed officials have said they will keep their benchmark lending rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent. They also said during a January meeting they would keep buying $40 billion per month in mortgage bonds and $45 billion in Treasurys.
“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 percent, 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 percent and threaten that threshold, that’s when the Fed becomes concerned.”
Employment rose 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed Friday in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped from 7.9 percent. Hiring in construction jumped by the most in almost six years.
Gross, who serves as co-chief investment officer of Newport Beach, California-based Pimco, wrote last week in his monthly investment outlook that asset-price irrationality is rising after years of record low benchmark interest rates by the Fed.
Gross reduced his holdings of investment-grade credit securities in his flagship $286 billion Total Return Fund to 9 percent in January, from 10 percent in December, according to the latest available data on Pimco’s website. Treasurys are his largest holdings at 30 percent.
Gross has said growing central-bank tolerance of inflation means investors should hedge higher prices by buying Treasury Inflation Protected Securities, known as TIPS. Gross warned investors against purchasing longer-term Treasurys and advocated notes with about five years to maturity, a sector the Fed has been acquiring through quantitative easing.
“The Fed will never, will never, sell their portfolio,” said Gross, who reiterated that Pimco is buying TIPS.
The $288 billion Total Return Fund gained 7.2 percent over the past year, beating 92 percent of its peers, according to data compiled by Bloomberg.
Pimco, a unit of the Munich-based insurer Allianz SE, managed $2 trillion in assets as of Dec. 31.
© Copyright 2023 Bloomberg News. All rights reserved.