The co-founder of Pacific Investment Management Co, better known as PIMCO, remains one of the investment industry figures whose comments, like those of Warren Buffett, are widely followed in the wealth management sector.

Renowned fixed income investor Bill Gross argues that the US Federal Reserve should raise rates rapidly to 3.5 per cent and then call a halt to further tightening to get the pain out of the way.

Gross, associated for many years with bond fund management group PIMCO, has issued a new investment outlook entitled “3.5% ASAP.” He returns to his worries about the massive expansion of credit that has taken place over the past decade and more. 

In June, the US central bank raised its benchmark rate by 0.75 percentage points â€“ the largest rate hike since 1994, pushing the rate to a range of 1.5 per cent to 1.75 per cent. Along with many other central banks, the Fed has started to tighten policy after a decade of ultra-loose policy. Inflation, propelled by cheap money, pandemic-induced disruptions, and the Russia-Ukraine war, has soared to levels not seen since the late 1970s and early 1980s.

When Gross issued its investment outlook report in February 2013, outstanding credit in the US stood at $56 trillion and was still rising. Since then, it has “expanded from $75 trillion to $90.5 trillion in a misguided effort to stabilize asset prices, inflation, and economic growth," Gross said.

Much of the credit has gone “into speculative financial assets as opposed to investment in the real economy," including "near historic P/E ratios for profitless stocks, NFTs, meme stocks and cryptocurrencies."

In consideration of this "highly levered system," Gross said the Fed's task of raising rates was "much like a drug addict would consider the steps for a healthy withdrawal. 'Cold turkey' in this case is definitely out, no matter what Powell says about inflation being his "top" and nearly only policy consideration." 

Instead of raising rates "rates too high, too soon," Gross recommends that the Fed "stop at 3.5 per cent but get there ASAP," and that investors avoid bonds and stocks, but consider Treasuries.

Gross left PIMCO in 2014, and eventually retired in 2019.