US rates to fall to 3 per cent

The chief investment officer of the world's largest bond fund has tipped that the official cash rate in the US will drop as low as 3 per cent next year. Bill Gross, manager of Pacific Investment Management Co.'s Total Return Fund which is valued at $US111 billion, said: “Typically, in past recessions, or near recessions, the Fed has eased to a 1 per cent real rate,” or the equivalent cash rate of 3 per cent. Gross said that mortgage rate need to fall to between 5 per cent and house prices would have to fall further to shore up the housing market. The US Federal Reserve has slashed the cash rate by a full percentage point since mid-September to the current level of 4.25 per cent in an effort to stop the economy from slipping into a recession.

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