Bill Gross: 'Mild' recession on horizon

Bill Gross, the chief investment officer of Pacific Investment Management Co. and manager of the world's largest bond fund, said the U.S. is headed for a ``mild'' recession in 2008 amid the worst housing slump in 16 years, according to a Bloomberg report. In an interview with Bloomberg Television, Mr. Gross said that the economic contraction will be ``a mild one based upon housing and its ultimate handoff, I suppose, to the consumer.'' Mr. Gross, who manages Pimco's $108 billion Total Return Fund, added that he expects the economy to grow as little as 1% on average next year. He also reiterated his forecast that the Federal Reserve will have to keep lowering interest rates, after three cuts since Sept. 18, bringing the overnight benchmark rate to 4.25%, according to the report. At the same time, the higher the rate is that the banks offer for the loans, the greater the sign of distress in the financial system, Mr. Gross said. If the discount rate, the rate at which banks can borrow at directly from the Federal Reserve, approach 4.75%, it is a ``sign that in the United States we've got real liquidity problems,'' Mr. Gross said. Pimco, a Newport Beach, Calif.-based unit of Allianz SE, a Munich, Germany-based insurer, manages about $721 billion.