Bill Gross says August’s jobs data ensure the Federal Reserve will raise interest rates this month. Pacific Investment Management Co., his former firm, says the central bank will wait. Bond traders are on the fence.
"September is on -- I don’t think it’s 100 percent on, but I think it’s close to 100 percent," Gross, manager of the Janus Global Unconstrained Bond Fund, said in an interview with Bloomberg Radio. "If these types of jobs don’t do it, I’m not quite sure what does."
Pimco, the firm Gross co-founded and left in 2014, disagrees.
“It’s kind of a weak report across the board, so it doesn’t change the view we’ve had that September is very unlikely,” Scott Mather, chief investment officer of U.S. core strategies and a managing director at Pimco, said in a Bloomberg Radio interview. “But then of course that makes December much more likely after that.”
The remarks come after a Labor Department report Friday showed employers added 151,000 positions last month, following a 275,000 gain in July that was larger than previously estimated. The median forecast in a Bloomberg survey called for 180,000 additions. The jobless rate and labor participation rate held steady, while wage gains moderated and hours worked were the lowest since 2014.
Mixed U.S. economic data in the past week pushed traders to pare wagers on a 2016 hike after Fed Chair Janet Yellen said on Aug. 26 the case for higher rates had strengthened. Minutes from the central bank’s July meeting showed policy makers divided on the matter.
Futures prices indicate about a 32 percent chance of a September move, according to data compiled by Bloomberg, down from 36 percent before the report’s release. The calculation is based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the increase.
By contrast, Goldman Sachs Group Inc. economists led by Jan Hatzius said the Fed is now more likely to hike in September. They see a 55 percent chance that the Fed moves this month, up from 40 percent previously, according to a note published Friday. The job gains were “just enough” for a majority of policy makers to support the move, they said.
Futures traders see about a 60 percent chance of a move by December, little changed from before the jobs report.
Mohamed El-Erian, chief economic adviser at Pimco parent Allianz SE and Gross’s former colleague at the firm, said the data further complicate this month’s decision.
"This is going to put the Fed in a really tricky position when they next meet in September," El-Erian said in an interview on Bloomberg Television. “This is going to ultimately come down to one fundamental issue: how worried are Fed officials about the collateral damage and the unintended consequences of a protracted period of low interest rates? If they are as worried as I am, then this report is a green light to hike. If they’re not worried, then they’ll wait."
Treasury two-year notes, the coupon securities most sensitive to Fed policy, reversed earlier gains, with yields little changed at 0.79 percent Friday at 5 p.m. New York time, according to Bloomberg Bond Trader data.
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