Aggressive Rate Hikes Risk Cracking U.S. Economy, Gross Tells FT

(Bloomberg) -- The U.S. could “crack the economy” if it raises interest rates beyond 2.5% to 3%, the influential bond investor Bill Gross has told the Financial Times. 

Gross said that while inflation was reaching concerning levels, the Federal Reserve wouldn’t be able to slap on increases much beyond those levels.

“We’ve just gotten used to lower and lower rates and anything much higher will break the housing market,” the Pimco founder told the paper.

The Fed on March 16 raised its key rate to a target range of 0.25% to 0.5% and signaled hikes at all six remaining meetings this year. It’s doing so to tackle the fastest inflation in four decades even as risks to economic growth mount.

Gross, known in the investment world as the Bond King, has been a critic of low interest rates, saying they’ve discouraged saving and contributed to the craze around meme stocks and NFTs. “All this nonsense”, he told the FT, was because Americans weren’t able to earn decent returns on their retirement funds. 

The Fed’s pivot to fighting inflation was cast into sharp relief on Friday as the central bank’s hawkish wing urged a faster pace of policy tightening and a onetime dove said there could be a case for aggressive action.

In the first wave of comments by officials following the quarter-point rate hike, St. Louis Fed President James Bullard said he favored raising rates above 3% by the end of the year, while Minneapolis’s Neel Kashkari -- who had argued for patience in raising rates from zero -- said he’d been wrong on inflation and now backed action.

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