Bond king warns ultra-low interest rates will be around for a long time

Federal Reserve Chairman Ben Bernanke has repeatedly stated that the central bank will most likely not raise interest rates until at least 2015 – the initial plan was to raise rates once the unemployment rate hit the 6.5 percent mark. By then, Fed officials say they expect a two percent federal funds rate.

Not everyone says this will happen.

Bill Gross, a renowned bond expert and co-founder of investment firm Pimco, wrote in his latest monthly outlook that Americans should prepare themselves for ultra-low interest rates that will remain for an extended period of time. Since the height of the economic collapse, the benchmark interest has been between zero and 0.25 percent.

“The United States (and global economy) may have to get used to financially repressive — and therefore low policy rates – for decades to come,” wrote Gross. “If you want to trust one thing and one things only, trust that once QE is gone and the policy rate becomes the focus, the fed funds will then stay lower than expected for a long, long time.”

He argues that part of the reason why low rates are here to stay is because the United States economy is not yet ready for a rate hike. Gross alluded to the 10-year Treasury yield that jumped to close to three percent from 1.6 percent on the word that the Fed was going to taper its $85 billion-per-month bond-buying program.

“The economy peeked its head out its hole like a groundhog on its special day and decided to go back inside for another metaphorical six weeks,” added Gross. “No spring or summer in sight at those yields.”

Indeed, if the low rates do last for “decades” as Gross suggested, will there even be a U.S. dollar by that time? Also, the Department of Treasury noted that interest payments on the national debt for fiscal year 2013 have amounted to more than $395 billion – that number is expected to jump to $1 trillion by the year 2023.

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