Bill Gross, the former manager of the world’s largest bond fund, said the U.S. Federal Reserve will raise interest rates late in 2015 to end distortions that six years of near-zero borrowing costs have brought to financial markets.
Any increase by the Fed will be slow to avoid startling markets that have gotten used to cheap money, and caution will prevail for a long time, Gross wrote in an investment outlook for Janus Capital Group Inc., where he runs the $1.4 billion Janus Global Unconstrained Bond Fund.
The former chief investment officer of Pacific Investment Management Co., who left that firm in September to join Janus, likened financial markets to the board game Monopoly, in which a bank, much like the Fed, supplies money to players who invest it in properties. Gross said the Fed realizes that for the game to function, players need incentives to invest.
“Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return,” he wrote. “Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates.”
Gross, 70, has previously said that falling oil prices and a strong dollar constrain the Fed from raising rates until late this year, “if at all.”
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