Cofounder, PIMCO
Bill Gross: Fed to Raise Rates in 2015 to End Distortions
Jan. 29 -- Bill Gross, a fund manager at Janus Capital Group Inc. and former chief investment officer of Pacific Investment Management Co., talks about the outlook for Federal Reserve policy, the U.S. economy and stocks. Gross speaks with Stephanie Ruhle and Erik Schatzker on Bloomberg Television's "Market Makers.”
About Bill Gross
Bill Gross, cofounder of Pimco, appeared at the third annual Bill Gross Business Plan Competition at Caltech on April 16, 2026. The competition, hosted by Caltech’s chief innovation officer Fred Farina, featured ten finalist teams selected from over 70 applications. Gross spoke about his own experience as a Caltech student, describing a presentation he gave in a class called E10 as one of the most valuable things he learned at the school. He said that "the ability to take your idea, crystallize it into a story and tell it to the world is really, really powerful." During the event, Gross also discussed his views on entrepreneurship, stating that it "unlocks human potential" and that forming a company with shared equity enables people to "feel like owners" and accomplish things "like never ever before." He added that the tools available to entrepreneurs today, including AI and other technologies, are "better than ever before." The competition also included a trailer for a new podcast, "Einstein Suite," which Gross co-hosts with Fred Farina, described as a series of conversations at the intersection of science, art, and culture filmed in the room where Albert Einstein stayed while at Caltech.
Transcript (20 segments)
✨ AI-enhanced transcript with speaker attribution
I
Interviewer0:00
Gross came out with an investment outlook for his new employer Janice Capital. He's on the phone with us now from Newport Beach, California. Bill, welcome. Capitalism breaking down. What do you mean?
B
Bill Gross0:11
Well, thank you, Stephanie. I didn't say it was about to break down. I said there was a danger of breaking down, and the danger comes from this distortion of monetary policy which offers only 0% interest rates and in some countries like Germany and Switzerland very negative interest rates. Investors require a return on their money in order to take risk or to lend their money to another party. To the extent that they're negative or zero, then investors or savers ultimately can simply stuff that money in a mattress as opposed to invest it in the economy. So these low interest rates have been too low for too long, and I think what the Fed at least is going to do in months or so is to raise it up a little bit to try and eliminate this distortion.
I
Interviewer1:06
Bill, if capitalism hasn't broken down yet, how would you describe the state of capitalism right now?
B
Bill Gross1:12
Well, it certainly is morphing. It's not in great shape. As we see in Japan and in developed countries, 0% interest rates have failed to generate any real growth, and that typically has been the historic result of lowering interest rates to entice investment in the real economy. So capitalism at the moment has morphed, it's been distorted by quantitative easing and the like. What an investor in the real economy requires, which is what the Fed is ultimately pointing towards, is an attractive return on investment. The problem with that is that returns in the financial market are so low that they've dragged down returns on investment, cap rates, and so on with real estate and other historically lucrative types of returns are in the four to 5% category, and there's simply too much risk relative to what they've known in the past.
I
Interviewer2:27
You write in the investment outlook, Bill, that returns on equities will be, quote unquote, supported. What does that mean?
B
Bill Gross2:33
Well, it means that Japan will more than likely continue to implement their quantitative easing policy, which means they'll print lots of money more than we did over the past several years. It means that Draghi will likely follow through with his promise of a trillion dollars or so over several years. Even though the United States for the moment is out of the game, the ECB and the BOJ have stepped in to take the place of the United States, and money and liquidity on a global basis is being provided now. So we'll see another year of 11, 12% returns on the stock market.
I
Interviewer3:16
Oh, I don't think so in the United States.
B
Bill Gross3:18
Perhaps in Japan and in countries where those quantitative easing policies have devalued and will continue to devalue those currencies, that makes stocks in their local regions attractive. But in the United States, where the dollar is appreciating and being devalued against, it's just the reverse type of concept. But I think ultimately the global liquidity will put a floor under stock prices in the United States, but the days of wine and roses, so to speak, are over.
I
Interviewer3:54
Well, Bill, you compare the game of Monopoly to current Fed action. How? Sending Janet Yellen to jail?
B
Bill Gross4:02
Well, as you go around the board in Monopoly and you collect $200, it's basically being provided with more cash and more liquidity to buy hotels. That's basically what a central bank does: they provide more money and more credit in order to generate growth in the real economy. The problem is that at the moment, that's not happening. That money isn't going into the real economy; it's basically going into the community chest or into jail, back to the banker. And so Monopoly as we knew it is changing as well because of the inability of new cash $200 per trip around the board to generate sufficient real growth.
I
Interviewer4:53
In 1937, the Fed preemptively raised rates and then we fell right back into a recession. Do you believe, looking back, Janet Yellen is a historian? Is that why we haven't seen any move yet?
B
Bill Gross5:02
Well, I think that's why we haven't seen any move. Through Bernanke's tenure, he was very aware of that, a student and a master of the depression in terms of what happened and the effects of it. That's not to suggest that Janet Yellen isn't following in this path. I think she is, and I think any central bank is aware that when they raise interest rates, much like the taper tantrum several years ago or suggest that they're going to raise interest rates, it can have precipitous consequences in a highly levered economy, which is what we have. So I think she will raise interest rates by 25 basis points in July or August, but it will be very slow. The forward curve, the treasury curve, suggests in the United States that in 2019 February they'll finally reach 2% in terms of the Fed funds rate. I think that's about right, but it'll take us three or four years to get there.
I
Interviewer6:04
Bill, do you think between now and then the 10-year treasury could test the 2012 low of 1.39?
B
Bill Gross6:14
To me, Eric, that's a stretch. Although let me hedge a tiny bit. Our treasuries are compared to German bonds and to UK gilts. On a competitive global basis, it's true that the current yield of 1.76 is much more attractive than the yield on the 10-year bond at 35 basis points. So US rates will be dependent upon where Germany goes and where the UK goes. To the extent that German interest rates are negative all the way out to six years, if their 10-year rate gets down to zero or goes negative like it has in Switzerland, then our rates get dragged down as well. A final conclusion on that is that those rates are ultimately so artificial that at some point investors refuse to take the bait any further. So I think it's possible they go lower from this point, but where they go in terms of the ultimate destination is dependent upon the conditions in Europe and Germany.
I
Interviewer7:31
Bill, are investors ignoring some of the fundamental flaws in the US economy right now simply because the US is doing better than the rest of the world?
B
Bill Gross7:38
Well, I think the US is doing better. We're going to see a GDP number tomorrow, and it's probably going to be a 3% number. Although I would point out because of no inflation, it'll probably be a 3% nominal number as well, which is very important because it's the nominal growth rate that determines profits and determines debt service relative to historical norms. So we're doing better. I think as the year winds on and as the boost from lower gasoline prices dissipates, we move back to a 2% and maybe even a 1% economy by the end of the year. But having said that, it's still better than what we see elsewhere in Japan and Europe.
I
Interviewer8:31
Bill, if you're right and investors in the bond market stop taking the bait, they refuse to be beguiled by central bank policy, what happens to that money? Where does all the liquidity that these very same central banks are pumping into the system go? Into what asset classes?
B
Bill Gross8:48
Well, it could go into two separate areas, Eric. Two tails. Some investors would prefer, like I said, to put it in a mattress, and that's a metaphor. But they simply put it in a bank because a 0% interest rate is close to what they would be taking on a 10-year treasury in terms of better risk and return. Other investors, as we've seen over the past several years, will go to the other tail and will invest in equities under the assumption that real growth ultimately will be the result of these policies. What we've seen so far is that certainly has been the case in the United States, and stocks have rallied significantly during quantitative easing and the like. But if real growth fails to continue to demonstrate its strength like it has in the past few quarters, then those tail investors that are dependent upon growth for equities will be likely to move back to...
I
Interviewer9:57
We're running out of time. I just want to ask you before we go: now that you are at Janice, not Pimco, do you feel that you have more freedom to really express your thoughts and tell us what you think?
B
Bill Gross10:08
Oh, not tell you what I think. I have more freedom to move because it's certainly smaller, I would recognize that, and so the ability to move in markets is different. But I've always told you what I thought.