Pimco’s Gross Expects Quarter Point Fed Cut

by Darren

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Guessing what the Fed will do vis a vis interest rates has been a passion for many for years now. Will the cut? Will the hold? Only Ben Bernanke knows for sure. But Bill Gross of Pimco is supposed to know these types of things and he says he does. He predicts a quarter point cut.

Gross, manager of the world’s largest bond fund, made his prediction after earlier saying that the Fed could be forced to lower interest rates below 3 percent next year to avoid a
recession. The federal funds rate is currently 4.5%, while the discount rate is 5%.

“It really is a divided Fed,” Gross said in the CNBC interview. “There are hawks still and there are doves…Nevertheless, twenty five basis points in terms of fed funds is probably the call. I’d look for 50 basis points in terms of the discount rate to solve that liquidity situation.”

The federal funds rate, which is what banks charge one another for short-term loans, influences a host of consumer interest rates. The discount rate, which is what the Fed charges banks for short-term loans, is more symbolic but has taken on greater significance because of the credit crunch that has swept financial markets since last summer.

The big problems facing the economy remain the same: tight credit and lower home values. Neither of those trends is expect to change course in the near term.

Do you expect a quater point raise?

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