Bond Market Guru Bill Gross Warns of a Slowdown

Bill Gross issues a warning:

tighter money and higher yields in the intermediate portion of the curve unfold over 1-2 year cycles and generally in the magnitude of 200 basis points (the “Volcker” tightening being the exception). The current upward cycle is now 27 months in duration and 230 basis points in magnitude, enough by historical standards to slow an economy or even produce a mild recession given increased leverage and the exogenous shock of energy prices. Typically an economic slowdown occurs 18 months after the beginning of an upward move in 5-year rates, and this cycle appears to be no exception with industrial production and service-related indicators having peaked nearly a year ago. We are due for what appears to be a 2% or less GDP growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in the year. It will likely be Bernanke’s first policy shift and an indicator of his willingness to address the Fed’s dual mandate of inflation targeting and economic growth.

You might want to read the whole thing since Bill Gross is probably the most influential person determining U.S. interest rates after the Fed Chairman.