Bill Gross said in an exclusive interview with CNBC on Monday that economic growth will likely fall to 2 percent. “Yes, we’re starting from a 3 percent growth economy that will probably persist for another quarter or so,” he said. “We get back to a relatively new structural growth rate, which is not 3 but probably 2 or even less.”
He attributed the decline to falling oil prices, which in turn affects industries such as fracking. Oil’s slide also “determines currency movements,” setting off a chain reaction. “Then financial markets try and readjust,” he said. “Hedge funds reduce leverage and sell other positions.” Gross said it would be “very difficult” for oil prices to stabilize.
Financial conditions are also problem, Gross said. “Why would the Federal Reserve raise interest rates in order to slow economic growth if in fact inflation was moving lower? They have a dual mandate from that standpoint,” he said. “I think the market basically doesn’t respect the second part of that mandate.”