The Federal Reserve would not be able to start a third round of quantitative easing after the second round expires at the end of this month, Pimco's co-chief investment officer Bill Gross said.
The members of the central bank's open market committee are "balanced but divided," Gross, manager of the world's largest bond fund, said on Wednesday in a speech at the Morningstar fund conference. "It will be difficult to initiate a QE3."
Instead, the Fed will try to keep interest rates low with its official statements, Gross said. The Fed has stated in each rate decision since March 2009 that it will keep rates low for an "extended period."
Gross's fund, the $243 billion Pimco Total Return Fund, has gained 3.24 percent this year, trailing 58 percent of similar funds, according to Morningstar data.
The fund is underweight U.S. Treasury securities and has shorted some related debt, Pimco has disclosed in recent months. The bet has not paid off as the Treasury market has rallied.
"Don't go into the Treasury market because these interest rates are so negative on a real basis," Gross said, explaining his view that inflation would outpace the nominal yield on Treasury securities.
Gross said he prefers non-U.S. debt issued by countries like Germany, Mexico and Canada. "You don't have to go far afield," he said.
Even well-known U.S. stocks with dividends are more attractive than Treasurys, Gross said. Offering examples such as Procter & Gamble, Johnson & Johnson and Coca-Cola, Gross said "these are consistent and steady dividends."
© 2022 Thomson/Reuters. All rights reserved.