BILL GROSS: The Fed Is Trapped In A Conundrum Of Providing Cheap Liquidity

PIMCO’s Bill Gross told CNBC that chatter over the Federal Reserve’s comments on further easing yesterday were “much ado about nothing or maybe much ado about a little,” downplaying risks that the Fed will not embark on another round of quantitative easing.

Yesterday, minutes of the Federal Open Market Committee’s March 13 meeting indicated that it would not embark on another round of easing measures unless GDP growth slowed or inflation dropped below 2 per cent. This disappointed investors convinced that the Fed would embark on another round of asset purchases by year end to fuel the recovery.

However, Gross believes the Fed—as well as the European Central Bank—recognises the importance of the positive market to sustaining economic growth. Therefore, it will eventually be forced to initiate another round of asset purchases to prop up equities markets.

“I think a good 5 to 10 per cent of the market has come through check-writing from the Fed and the rest has come from economic recovery, which in itself has come through check-writing,” Gross argued.

He continued. “Is the Fed trapped in this conundrum of providing cheap liquidity in order to prop up stock markets and risk markets? I think they are,” adding, “it’s a necessary policy based on where central banks have led us.”

Watch his full interview below:

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