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Fed Won’t Raise Rate Till 2011, Pimco’s McCulley Says

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Candice Zachariahs
Sunday, August 2, 2009

Federal Reserve Chairman Ben S. Bernanke won’t raise borrowing costs before 2011 as the threat of deflation remains for the U.S., said Pacific Investment Management Co., which runs the world’s largest bond fund.

Benchmark 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,” said Paul McCulley, 52, managing director at Pimco, in an interview that was broadcast by the Australian Broadcasting Corp. today, and taped earlier in the week. “What I’m worried most about is simply a shortfall in global aggregate demand relative to supply potential.”

U.S. economic growth will be closer to 3 percent than the range of 5 percent to 7 percent for the past 15 years, Bill Gross, who runs Pimco’s Total Return Fund, said in his August investment outlook last week. The U.S. economy will begin to recover in the second half of 2009, he wrote on Pimco’s Web site.

Gross’s $161 billion Total Return Fund returned 12 percent in the past year, beating 96 percent of its peers, according to data compiled by Bloomberg. Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.

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This article was posted: Sunday, August 2, 2009 at 5:06 am

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