Bill Gross sees possibility of stagflation, says he wouldn't be a buyer of stocks here
Bill Gross, the one-time bond king who co-founded fixed income giant Pimco, said he sees the possibility of stagflation in the economy and he wouldn't buy stocks aggressively now.
The 77-year-old investor believes that although the Federal Reserve is aiming at combating surging inflationary pressures, it also fears that too many rate hikes could put too much downward pressure on asset prices, causing a turmoil in financial markets.
«I think they're sort of handcuffed in terms of what they can do, they went so low. And inflation now is so high on a historical basis that it's going to be difficult raising interest rates too much,» Gross said Thursday on CNBC's «Worldwide Exchange» in an interview with Brian Sullivan.
«And I say that simply from the standpoint of a realistic assumption that the stock market was driven, in part, perhaps 30% to 40%, by lower interest rates, and especially lower real interest rates. And to the extent that you now raise them even by 50, to 100 to 150 basis points… there's a significant impact on financial discounts the forward stream earnings, so I think they have to be very careful,» Gross said.
If global central banks are stuck in a low interest rate world, that could result in persistent inflation combined with a global economic slowdown, an environment dubbed as stagflation, Gross said.
«It perhaps means stagflation. And, you know, inflation above 3% to 4% for some time now,» Gross said.
Consumer prices increased 7.5% from a year ago in January, and the Fed's preferred inflation gauge showed its biggest 12-month increase since 1983.
Fed Chairman Jerome Powell said Wednesday that he still sees a series of quarter-percentage-point increases coming, but noted the Russia-Ukraine war has
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