One market proxy for inflation, the 10-year breakeven inflation rate, climbed on Tuesday to the highest since January 2014. Gross noted that commodity prices have surged by almost 40% since bottoming last April.
The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of its two-day policy meeting on Wednesday. Federal Reserve Chairman Jay Powell, meanwhile, has promised to ignore spikes in inflation until the central bank determines that its revised targets for price stability and employment are met.
Gross isn’t sure he’ll have the necessary patience though. Not since the 1960s has the Fed let inflation run deliberately “hot.”
“Three to six to 12 months at 3% to 4% plus inflation will give him pause in terms of his current policy,” Gross said.
Throughout the pandemic, investors desperate for yield have been prospecting in unconventional places. For Gross, one such adventure was natural-gas pipelines. He said he bought some master limited partnership units last year, attracted by tax advantages and yields of 13% to 14%. Gross was also encouraged that Warren Buffett was making a similar bet.
Gas prices have since taken off, buoyed by the oil market and accelerated by the shortages last month during the winter storm that paralyzed Texas. One index of natural-gas MLPs has risen almost 28% this year.
“I caught the ride on energy,” Gross said. “That’s my main focus now.”
—With assistance from Brandon Kochkodin, Edward Bolingbroke and Sam Mamudi.
This article was provided by Bloomberg News.