Fed won't increase interest rates until 2011
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Don't look for the U.S Federal Reserve to increase short-term interest rates anytime soon. Paul McCulley, managing director of PIMCO, the world's largest bond fund, said the Fed won't increase borrowing costs before 2011, due to the threat of deflation. Key short-term mortgage rates will not rise "before 2011 and I'm not only forecasting that as a professional forecaster, but positioning portfolios on that proposition as well, " McCulley said in an interview with Australian Broadcasting Corp., Bloomberg News reported Monday. "What I'm worried most about is simply a shortfall in global aggregate demand relative to supply potential." McCulley, who heads PIMCO's short-term bond desk, spoke before the release of Q2 U.S. GDP data that indicated the nation's worst economic slump in more than 20 years appeared to be bottoming. U.S. GDP contracted a less-than-expected 1 percent in Q2, after a 6.4 percent plunge in Q1. The comments are also in-step with McCulley's PIMCO colleague, bond guru Bill Gross, who manages PIMCO's Total Return Fund. In his August investment letter, Gross said U.S. economic growth will be closer to three percent than the five to seven percent range recorded for the past 15 years, adding that he expects the economy to begin to recover in the second half of 2009. |
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