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Fed should cut rates to 1 percent: Pimco’s Gross

Oct 7, 2008 Market Outlook

LONDON (Reuters) - Influential investor Bill Gross called on Tuesday for the Federal Reserve to cut interest rates to 1 percent from the current 2 percent because of sharp falls in asset prices globally.

“We are experiencing asset deflation and the threat of headline inflation is long past,” he said in a note.

Gross is chief investment officer of U.S.-based Pacific Investment Management Co., or Pimco, and manager of the world’s biggest bond fund.

He said the Federal Reserve needed to come up with a systematic solution to the current crisis including acting as a clearing house to guarantee that institutional transactions clear, and buying commercial paper outright.

Gross said investors should expect a lengthy recession but not a depression.

“It is best to focus on the potential unfreezing of commercial paper and a globally coordinated policy rate cut,” he said.

“Own the front ends of Treasury/LIBOR yield curves. Agency mortgage-backed securities will also benefit from Treasury buybacks. Stay liquid, remain in high quality.”

http://biz.yahoo.com/rb/081007/business_us_markets_fund_pimco.html

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Tags: Asset Prices, Bill Gross, Biz Yahoo, Bond Fund, Chief Investment Officer, Clearing House, Current 2, Deflation, Front Ends, Headline Inflation, Institutional Transactions, Investment Management, Investor Bill, Libor, London Reuters, Mortgage Backed Securities, Pacific Investment Management Co, S Gross, Systematic Solution, Yield Curves