Pimco's Crescenzi: Jobs Report Won't Alter Timing of Fed Hikes

Pacific Investment Management Co.’s Anthony Crescenzi said that U.S. job gains and unemployment at a six-year low are unlikely to prompt the Federal Reserve to raise interest rates before the middle of next year.

“Will they see something here that makes them move faster — probably not,” Crescenzi, a money manager at the world’s biggest manager of bond funds, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “The Fed probably will say this is good, we want this for American, and we still haven’t seen it use up enough slack to give Americans a raise. You will see the Fed being very cautious in moving rates.”

The U.S. jobless rate declined to 5.9 percent in September and employers in the U.S. added 248,000 positions. The median forecast of economists in a Bloomberg survey called for a 215,000 advance. The unemployment rate fell to the lowest level since July 2008 from 6.1 percent.

Traders anticipate the Fed will start boosting rates in September and lift its target for overnight loans between banks to about 0.75 percent by the end of 2015, futures trading shows. Fed officials raised their median rate forecast last month by a quarter-percentage point to 1.375 percent for the end of 2015.

“Markets expect the Fed will be moving on interest rates next year,” said Crescenzi, noting Pimco also predicts such a move. Fed Chair “Janet Yellen is obsessed with getting wages up for Americans. What is normal for Americans is to get a pay increase of 3 percent. So why not let it run a little hot for a little while — the economy — as you see the payroll gain and the jobless rate fall.”

Favoring Credit

The report showed average hourly earnings were stagnant in September from a month earlier. Versus a year earlier, wages rose 2 percent. The so-called participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978, from 62.8 percent a month before.

In the current environment, where nominal growth will continue to be about 4 percent, Newport Beach, California-based Pimco favors credit, which includes a ’’broader definition’’ of securities such as mortgage and sovereign debt, Crescenzi said.