Bill Gross Of PIMCO Says Interest Rates Will Stay Low For A Long Time

Posted By on December 2, 2011

Bill Gross of PIMCO says (despite today’s positive unemployment news) things continue to be bad, and interest rates will likely stay at record lows for another four years.

From Bloomberg:

Pacific Investment Management Co.’s Bill Gross said U.S. employment growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated.

The Fed will keep the target rate for overnight loans at current levels for as long as four years, up from the through the middle of 2013 period outlined, Gross, manager of the world’s biggest bond fund, said in a radio interview on“Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

.“The Fed is focusing on the problems in euro land and the potential lock-up of the financial markets. The QE3 that I expect is really not an increased amount of purchasing in terms of the Fed’s balance sheet but an extended period language that allows the market to anticipate a two, three, or four years period of time where fed funds stay at 25 basis points.”

“The Fed is going to stay low for a long, long time, and that keeps twos and fives and actually tens fairly well anchored,” Gross said. “But it’s the 30-year that will reflect these reflationary efforts not only from the Fed but from the ECB” and other European central banks working in conjunction with the International Monetary Fund to support the highly-indebted peripheral European nations.

Gross advised investors to keep their money in only the safest investments, such as government debt of the U.S. or Canada, or even in cash. High-dividend paying shares from companies such as Coca-Cola Co. (KO) and Procter & Gamble Co. (PG) are also attractive, he said.

“To the extent that you can get 3.5 or 4 percent from an electric utility or a Coke or a Procter and a very stable cash-flow-type of company relative to 2 percent 10-year Treasury,”it’s an attractive investment, Gross said. “One has to be suspicious in terms of the risk premium because markets go up 2 or 3 percent a day.”

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