Tags: Gross | Fed | Rate | Hike

Gross: Fed’s New Policy Means No Rate Hike Until 2016-17

Wednesday, 12 Dec 2012 05:33 PM

By Dan Weil

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The new policy unveiled by the Federal Reserve Wednesday means the central bankwon’t raise rates until 2016 or 2017, said Pimco co-chief investment officer Bill Gross.

The Fed said it plans to keep the federal funds rate target at zero to 0.25 percent until unemployment drops to 6.5 percent.

With the jobless rate at 7.7 percent in November, and assuming a 200,000 monthly gain in payrolls, “that’s probably going to take four to five years,” Gross told CNBC.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“To think that the Fed can manage interest rates for that period is a decent stretch."

The Fed also pledged Wednesday to expand its quantitative easing program by purchasing $45 billion of Treasurys a month starting in January.

“The Fed has been very active since the crisis began, and they are feeling some time pressure, because the longer Americans stay unemployed, the harder it is to incorporate them back into the labor force,” Dana Saporta, a U.S. economist for Credit Suisse, tells Bloomberg.

The issue goes beyond jobs, economists say. "They [Fed officials] see an anemic economy, and they're doing all they can to get any economic progress," Alan Lancz, president of money manager Alan Lancz & Associates of Toledo, Ohio, tells Reuters.

The economy grew 2.7 percent in the third quarter and 1.3 percent in the second.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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