Bill Gross Sees A 50/50 Chance Of A Rate Hike; Here's Why

Bill Gross of Janus Capital recently appeared on Bloomberg and shared his views on Friday’s jobs numbers, the markets and the Fed policy with Tom Keene and Michael McKee.

Janet Yellen

When asked about what’s important to Janet Yellen right now, the asset manager said what matters most to her are “financial conditions, although she wouldn’t place it number one in a press conference. I think she thinks that growth is fine, that unemployment is pressing limits, and inflation ultimately will move to 2 percent,” he added.

And so, he continued, what Yellen is “concerned about are imbalances in financial conditions;” in stock prices, in yield spreads. “That means money moving into various asset classes that suggest some type of potential bubble. And so financial conditions are the key for her Fed, and perhaps the fed of the BOE.”

Related Link: Bill Gross On Rate Hike: 50 Basis Points Would Scare, 25 Is The Majority Consensus

Gross’ Perspective

The investor then went on to talk about his view of the current financial conditions, which – in a respect – embodies Yellen's own opinions. He assured it is not at all easy to “call the end of a bull market or to speak to bubbles such as the 'dot com' bubble or any other period of time. But there certainly is a speculative fervor in markets and a lack of liquidity,” he assured.

The market is moving constantly, every minute; and that, to Gross, indicates that markets are, in fact, not stable, nor steady. “They may not be overpriced necessarily, but they are volatile, and the volatility itself is something that they want to zero in on,” he concluded.

The Rate Hike

After going over several other subjects, including emerging economies, Gross returned to the interest rates issue, suggesting that “the Fed is one and done and waits.” So, are they going to increase rates on September 17?

According to the investor, “It’s 50/50, and China and global conditions are the dominant factor.” Otherwise, he would have said they are set, he declared, “I think Fischer and Yellen and maybe even Dudley […] their fingers are itching.

“What they want to do is, yes, normalize to the extent that they can. But they also want to try out this fancy, new system that they’ve got or they think they have in terms of repo and paying on overnight bank reserves to see how they can finesse that in a systematic way that produces a stable overnight money market rate,” Gross continued.

So, he thinks they want to begin experimentation because, at some point down the road, maybe six months from now, maybe two years from now, “they may have to really put it into effect. And so this is sort of like a trial that they want to get going quickly.”