Bond king Bill Gross warns that low interest rates could have a negative impact on the U.S. economy.
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“There is potential harm to a capitalistic economy because when interest rates are that low, it introduces distortions into financial markets,” Gross said. “It elevates stock prices, it elevates bond prices and lowers interest rates.”
Gross told FOX Business Network’s Trish Regan that the Fed needs to act soon on rates.
“Capitalism depends on investment,” he said. “Productivity depends upon that investment in the extent that markets are distorted, then the investment in the real economy, which is the most important and critical factor, becomes distorted and at risk. Ultimately, I think the Fed gradually has to raise interest rates to give, if only, savers a break.”
He added, “I think [the Fed] is still stuck in the old method that suggests that the lower the interest rate the better. When Bernanke went through one percent or through two percent down to the zero level and introduced QE that the distortions began.”
“Ultimately, I think the Fed does have to try to normalize interest rates and bring them back to pre-Lehman types of levels… probably lower, but certainly not zero percent.”