Jackson Hole

Fed's Monetary Policy Has Hit Dead End

CNBC,

3 September, 2012

The Federal Reserve will likely embark on its next round of monetary stimulus in two weeks, Bill Gross, Pimco’s co-chief investment officer, told CNBC’s "Street Signs" on Friday. But he said more stimulus won’t do much to improve the country’s job market. 

“What the Fed is targeting in terms of quantitative easing is sustained improvement in employment,” Gross said after Bernanke's much anticipated speech in Jackson Hole on Friday. “Until you see several quarters of perhaps 7 percent unemployment, you will see QE.” 

Gross expects the Fed to act at its September meeting, but may hold off another month if the August employment report is strong. (Read More: Bernanke at Jackson Hole: No More Easing, For Now.)

Earlier in the day, Bill Gross tweeted that Bernanke would "go out with his guns blazing." While more QE3 is a near certainty, it is increasingly impotent, Gross tweeted. 

The Fed is likely to adopt an open-ended quantitative easing  program without any specific targets as to which assets it will buy, how much and for how long. That type of program “will allow the Fed to move in a fashion that pleases most of the governors,” Gross said. 

While the Pimco founder said the Federal Reserve  and other central bankers believe QE will assist economic growth, he isn’t convinced it will do much to improve the labor market. 

“Monetary policy has reached a dead end,” Gross said. “Once you get down to zero percent on interest rates, there’s not much left to stimulate.” 

That said, the company's mantra is “Don’t fight the Fed, but be afraid of the consequences, or lack of consequences, going forward,” Gross added