"I think the Fed will raise rates by 25 basis points sometime this year," Gross said about the Fed on Wednesday following its first policy-setting meeting of the year repeating that it will remain "patient" in deciding when to raise interest rates. The U.S. central bank also said the U.S. economy is on track despite turmoil in other markets around the world.
"The statement indicates that they still believe inflation will glide back to relatively normal levels on the medium-term, but they recognize that the economy is stronger," Gross said.
"Let me suggest that the real reason that they want to raise interest rates, at least symbolically, is that even in the face of this low inflation, they recognize that zero percent interest rates and near zero percent money-market rates are distorting capitalism and that the zero percent interest rates are moving money into the financial sector for arbitrage and profits - and very little of that is going into the real economy for investment."
The Fed acknowledged that inflation had declined further below its longer-run objective and that market-based inflation measures had fallen substantially - a more negative assessment of inflation pressures than in December.
But the Fed's overall tone was optimistic, keeping it on pace to raise rates later this year. Some Fed officials and economists have indicated a rate hike, which would be the first in nearly a decade, is more likely to occur between June and September.
(Reporting By Jennifer Ablan; Editing by Chris Reese, Bernard Orr)
