The Federal Reserve's surprise move on Thursday to raise the interest rate it charges banks for emergency loans does not mean that a full-fledged tightening cycle has begun, the manager of Pimco, the world's biggest bond fund, told Reuters.
"I don't think it's the beginning, really, of a tightening from the standpoint of monetary policy," Bill Gross told Reuters Insider television soon after the Fed's decision.
"I don't think it is the beginning of an increase in the fed funds rate or in terms of interest on reserves that has been discussed as well."
Late on Thursday, the Fed cast its decision to raise the discount rate to 0.75 percent from 0.5 percent as a response to improved financial market conditions that warrant less of a helping hand from emergency programs introduced by the central bank during the 2008 global financial crisis.
The U.S. central bank took pains to draw the distinction between the discount rate and its target for the overnight interbank rate, its main monetary policy tool. That rate remains unchanged near zero percent as a fragile U.S. economic recovery struggles to gain traction.
"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.
"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," it said.
Gross, who as co-chief investment officer at Pimco helps oversee over $1 trillion in assets, said it is unlikely the Fed will begin a tightening phase during a period of elevated unemployment.
"Let's face it, the Fed is looking at a number of fundamental factors ... the output gap, the unemployment rate at 10 percent — plus or minus — and the substantial amount of operating capacity excess," Gross said.
"I don't think the Fed dares increase the fed funds or policy rate in the face of unemployment at double-digit type of levels. This is more of a technical maneuver."
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