Pimco boss Bill Gross warns of inflation risk
PIMCO boss Bill Gross has warned of the inflation risk caused by central banks’ efforts to kick-start growth and raised the prospect of a fresh downgrade to the US credit rating.
Gross, founder and co-chief investment officer of the California-based bond giant, said stimulus policies have created an “ocean” of credit.
“In 2008, central bankers never really knew how much debt was out there, and to be honest, they don’t know now,” Gross said in his monthly letter to investors.
He warned that boosting the pool of credit would produce economic growth this year for developed countries but also create structural risks and rising inflation.
He said US Federal Reserve bankers appeared to believe that markets will buy future Treasuries at low yields “because the private market’s ‘stock’ of Treasuries has been depleted”.
Gross later told CNBC the US could be downgraded if it does not tackle its debt. He cited the structural deficit figure, which is between six and eight per cent greater than any other country besides Britain and Japan.
“Until we address that structural deficit then yes, we’re headed to AA territory,” he said.
The US is currently rated AA+ by Standard & Poor’s and AAA by Moody’s and Fitch. Last summer S&P downgraded the US to AA+ with a negative outlook for the first time in its history.
Gross gave the US a personal credit rating of AA+ but said he was “very conscious” of the “fiscal cliff” near the end of the year.
He spoke out as filings of the European arm of Pimco showed seven directors, including the brother of shadow chancellor Ed Balls, shared a £57m pot last year.
The highest-paid director, who was not identified, received £29.96m, according to filings at Companies House. In total the directors were awarded £57.13m. Profit before tax was virtually flat at £28.02m.
Andrew Balls is a managing director in the London office and head of European portfolio management.
Pimco did not respond to calls.