Bill Gross Fed Quotations

He's very learned, very astute and well-spoken. He's demonstrated an ability to be political when necessary, which is a function of a good Fed chairman, and has demonstrated his depth of understanding of economics and the relationship between economics and financial markets.

Central banks don't rest at one rate for long. If only to impart a bid to the U.S. housing market, they (the Federal Reserve) may have to start cutting again as early as the end of the year.

By the time 10-year and 2-year Treasuries reach parity, as is almost the case now, the economy is typically slowing and the Fed is at or near the end of its tightening cycle, ... We are due for what appears to be a 2 percent or less Gross Domestic Product growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in the year.

As long as the stock market does what it does, and keeps going up, the wealth effect is going to transmit into a fairly strong U.S. economy and preclude the Fed from easing rates,

If the economy slows down, if housing moves back down, then at some point late in 2006 the Fed starts to lower rates. That's why a 10-year note yield at 4.55 percent is a decent value as opposed to overvalued.

The Fed knows that the economy is in terrible shape and that they must bring down short-term rates to the level of inflation. If inflation keeps coming down, the Fed, to a certain extent, has to chase inflation.

If Fed Funds were expected to rise in the future, the curve would be positive with intermediate and long bonds requiring higher yields as a cushion against accelerating short rates. If the Fed were expected to lower rates, a flatter, even inverted curve might result. It's not that this academic theory has been dislodged in recent years but it may have been asked to take a seat next to the increasingly important variable of global financial flows. These flows, no doubt, rely critically on the willingness of foreign investors to hold U.S. assets in the face of potential currency and asset price depreciation.