Bill Gross, founder and co-CIO of Pimco, thinks the Fed will have to “taper” its bond purchases by the end of the year because lower deficits in Washington mean the Treasury will issue less debt, which could create a shortage of Treasury securities if the Fed continues QE at its current pace.
Gross still doesn’t think the economy is strong enough to stand on its own, without support from the Fed. But he has also derided quantitative easing as “chemotherapy” that may do more harm than good. Gross cites three side effects of QE that could be distorting the economy and holding back growth. First, super-low interest rates encourage saving, leaving less money available for investment. Second, financial firms that rely on more normalized interest rates for income are less profitable, which means they hire fewer workers. Finally, low returns on investment discourage companies from deploying capital in the real economy, contributing to lower growth and fewer jobs. See his article: Wounded Heart.