Gross: Fed May Cut Rates By Year-End

Dow Jones is reporting that PIMCO’s Bill Gross sees the Fed pausing at 3.5% by August. He is looking US GDP Growth at 2%-3% in the next 6 months.

Even more interesting, Gross notes the Fed may cut rates by year-end.

Note that my expectations (see this column) are for cuts to begin sometime in 2006.

I see your expectations for two more hikes .. And as long as we are making
predictions, I will raise you a new series of rate cuts (yes, cuts),
beginning mid-2006.

Why? ‘Cause the Fed will be do what the Fed always does — careen
from one "situation" of their own creation to another — while the side effects
each prescription begets create a whole new round of fevers and chills, and yet
a new prescription is then rolled out to treat those ills. It is an endless
cycle.

Now, it seems Bill Gross one ups me. I suspect he’s wrong, that the Fed might be reluctant to reverse course so quickly.

I’ll see if I can track the rest of his comments down.

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UPDATE:  June 21 2005, 11:55 am

11:53 (Dow Jones) Speaking in Chicago, PIMCO’s Bill Gross says he expects the Fed to take the target funds rate to 3.5% by August, and then pause. Gross, who has been increasingly bullish on rates, took things a step further by predicting the Fed may actually start easing rates by the end of the year. Meanwhile, he sees U.S. GDP growth slowing to between 2%-3% in the next six months.

"I think they will have to stop (raising rates) shortly" to keep the U.S. economy going, Gross told reporters after speaking at Morningstar Inc.’s (MORN) investment conference, projecting the economy will grow 2% to 3% in the next six months. Gross is managing director of one of the world’s largest bond funds, with $450 billion in fixed-income assets under management.

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UPDATE:  June 22 2005, 10:45 am

More details can be found here:

Bill Gross: Fed to end rate hikes soon
Believes the Fed will end hikes this summer, then send rates lower; cautions against hedge funds.
June 21, 2005: 2:45 PM EDT
http://money.cnn.com/2005/06/21/news/economy/gross_rates.reut/index.htm

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