(Bloomberg) -- Inflation in the U.S. is likely to come back slowly, keeping the Federal Reserve from raising interest rates for an extended period, according to the chief executive officer of Pacific Investment Management Co.
Over the next couple of years, prices are likely to increase to the 2.3% to 2.4% level, Emmanuel “Manny” Roman said Tuesday at the Bloomberg Invest Global virtual event. The central bank has learned its lesson from past interest rate increases and won’t want to risk another market “tantrum,” he said.
“The days of inflation we remember are gone,” Roman said. “We don’t think the Fed is going to raise rates for a very long time.”
Led by the Fed, central banks have been cutting interest rates and buying securities to combat the effects of the coronavirus pandemic, an intervention that helped stabilize global markets. Even as U.S. unemployment soared to its highest level in decades, stock markets have recovered most of their recent losses and corporate debt investors have poured money into junk bonds.
“You can make the argument that the signaling is actually more important than the actual amount that they buy,” Roman said of the Fed’s intervention.
U.S. equities rose to a two-week high Tuesday amid a report that President Donald Trump supports sending another round of checks to Americans and data that showed manufacturing is nearing expansion.
Pimco, with about $1.8 trillion in mostly fixed-income assets under management, is raising at least $6 billion for distressed credit and other corporate debt opportunities to take advantage of dislocations driven by the virus crisis. It’s also looking to return as an originator of collateralized loan obligations for the first time since 2006, eyeing prospects for charging higher interest rates and stricter underwriting standards than pre-pandemic issues.
Rivals such as Howard Marks’s Oaktree Capital Group also have launched new long-term funds to seize underpriced assets that feature multi-year lockups to allow the investments to regain value.
Under Roman, Pimco has continued to focus on actively managed funds even as money pours into low-fee index-tracking products across the industry. U.S. active managers saw assets in their funds dip in May from a year earlier as the spread of the coronavirus sent equity markets swinging wildly.
Roman, 56, became CEO of Pimco, a unit of Allianz SE, in 2016 after heading Man Group Plc and spending 18 years at Goldman Sachs Group Inc.
Roman also said:
Pimco’s traders will be expected to work in the office. Already, 75% of its staff in Asia has returned to their desks. “We need all hands on deck.”China will be a big point of contention in the U.S. presidential election. Many U.S. companies will also move away from using China as a source because the Covid-19 pandemic brought home the need to diversify supply chains.The U.S. economy probably won’t return to 2019-level gross domestic product until the end of 2021.The housing and technology sectors are strong, but it’s harder to tell about the recovery for retail, leisure, gaming and oil and gas.Pimco is putting together funds to match liquidity with the long-term recovery it expects. “The ability to deploy capital to restructuring is the opportunity to deliver outsized returns.”Pimco expects to grow organically. Mergers and acquisitions are difficult over Zoom.
(Updates with additional comments on Fed starting in fifth paragraph.)
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