Legendary investor Bill Gross warns the Fed against cracking the economy by aggressively raising interest rates

Veteran investor Bill Gross has warned that the Federal Reserve could seriously damage the US economy by raising interest rates too aggressively.

“I guess you can’t get above 2.5-3% before you restart the economy,” Gross told the Financial Times in an interview published Saturday.

“We’ve just gotten used to lower and lower interest rates, and anything much higher will destroy the housing market.”

The Fed last week raised interest rates for the first time since 2018, and officials signaled six more hikes are likely this year. Policymaker James Bullard, President of the St. Louis Fed, has called for interest rates to rise above 3% this year.

Gross told the FT that low interest rates have had a negative impact on the economy and markets.

“That destroys the savings function,” he said. “Meme stocks and NFTs, all this nonsense in my eyes grew out of an inability to get a decent return on your 401k.”

Gross co-founded the investment firm Pimco and built it into the leading force in the fixed income world. The 77-year-old “Bond King” is now investing his own money after retiring in 2019.

The veteran investor has used options to bet against meme stocks GameStop and AMC. He told the FT that he was up about $15-$20 million on the positions.

Despite worries from investors like Gross, many analysts and policymakers believe the Fed can raise rates by relatively large amounts without doing too much damage to the economy. The SP 500 rose more than 6% last week, posting its best weekly performance since November 2020, when the Fed began its cycle of tightening.

Central bank policymakers said last week that they expect to hike interest rates to a peak or tail rate of around 2.8% by 2023.

“We see the risk of a recession over the next 12 months as relatively limited,” Morgan Stanley economists said in a note to clients last week.