Tags: Gross | Fed | curb | QE

Pimco's Gross: Fed Likely to Curb QE in September

Wednesday, 22 May 2013 06:24 PM

By Dan Weil

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The Federal Reserve is likely to taper its quantitative easing in September, says bond-investing legend Bill Gross, co-chief investment officer of Pimco.

The Fed is currently buying $85 billion of Treasurys and mortgage-backed securities a month.

Both Fed Chairman Ben Bernanke and New York Fed President William Dudley have suggested a tapering is coming within the next few meetings of the Fed's policymaking Federal Open Market Committee, Gross told CNBC.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

"I think we're looking at a potential tapering in the next few months, probably around September," he said. 

Bernanke gave conflicting comments about whether a tapering will come soon in his congressional testimony Wednesday.

"That's what happens when you approach an inflection point," Gross said. You talk with uncertainty to alert investors there's change coming."

The bond market already is preparing for a tapering, with the 10-year Treasury yield having risen to 2.04 percent from its record low of 1.38 percent in July 2012, Gross says.

"Even if the Fed begins tapering, say, in September, current yields reflect that," Gross says. "Fed studies have shown that QE has lowered 10-year yields by 100 basis points. We're half way there, and we haven't even begun to taper yet."

Lou Crandall, chief economist at Wrightson ICAP, told Bloomberg that Fed officials “need to see inflation expectations remain in a desired range, they need to see that the peak home-buying season goes as well as it can, and they need to see that we have absorbed the bulk of the huge fiscal consolidation” before they taper.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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