Financial markets were quite excited with the European Central Bank’s larger-than-expected quantitative-easing program, but legendary bond investor Bill Gross is not so psyched.
In an interview with the Financial Times published on Sunday, the Janus Capital bond manager and former Pimco executive said the 60-billion-euros-a-month bond-buying scheme has come too late, raising doubts whether it will actually help to boost bank lending to the real economy.
“Draghi had no choice [with regards to QE] but it comes far too late. That will become his problem,” Gross said in the interview.
“I don’t think QE will work as well in Europe as it did in the U.S.,” he added. “There are only a limited amount of securities to buy and interest rates are now so low that it’s not necessarily the case that [banks will use] the money to invest in the real economy. I do wonder if much good can come of it.”
The ECB’s decision to start pumping billions of euros into the eurozone financial system came after months of mounting pressure on the central bank to do something to fight off dangerously low inflation levels in the eurozone. In December, growth in consumer prices turned negative for the first time since October 2009, largely due to the slide in oil prices. The deflationary pressures intensified in January, with inflation dropping to negative 0.6%.
In the Financial Times interview, Gross acknowledged that ECB President Mario Draghi had no option but to pull the QE trigger, although the actual success of the program is likely to be hampered by late implementation.