Pimco's Gross: Recession Unlikely in the US

Thursday, 02 May 2013 09:15 AM

By Dan Weil

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The U.S. economy doesn't look headed for recession in the next 12 months, but it's no sure thing, says Bill Gross, co-chief investment officer at Pimco.

"That importantly depends on the global environment — Euroland, and how quickly they come out [of their recession,] and China, that vast mystery of growth that supposedly grows forever at 7.5-8 percent," he told CNBC.

"I would watch those two areas to see whether or not the U.S. will be ultimately affected," he added.

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

As for financial markets, "we're not looking at Armageddon, but we're looking at an increasingly risky environment."

And why is that? "Because real growth has not been produced by these quantitative easing measures, and some day there will be consequences," Gross explained.

Asked whether the stock market's rise to record highs stems more from the Federal Reserve's easing or improving corporate fundamentals, Gross said it's both.

"Stock prices have been artificially elevated by the Fed's check buying, no doubt," Gross noted.

"But the real economy and corporate profits have been increased as well, because the cost of debt has come down substantially. We estimate that over the last 12 to 24 months, about 35 percent of the increase in corporate profits has come from interest rates coming down."

As for Fed action going forward, the central bank's policymaking body said Wednesday that it stands ready to increase or decrease quantitative easing as necessary.

"I don't think there's much chance of them stepping it up," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told The New York Times. "But this is certainly their way of saying there's no bias toward scaling down."

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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