Dan Fuss, the famous Boston bond manager, said Thursday that he has no idea when the Federal Reserve will raise interest rates as it contends with a host of economic forces, from a slowdown in China, to weaker-than-expected job growth in the United States, to inflation that appears too low.
There’s not enough aspirin in the world “to deal with the headache our central bank has right now, ” said Fuss, vice chairman at the Boston investment firm Loomis, Sayles & Co., at a financial conference in the Back Bay.
Fuss, like many people, said he thought rates would rise two years ago, but they didn’t. As more investors bet the Fed won’t raise its key short-term this year, Fuss and other fixed-income experts at the conference took the position that boosting rates for the first time in nearly a decade is hard — and getting harder with each passing month.
Fed policy makers will meet two more times this year to discuss rates, next week and in December. Most analysts say the earliest Fed might act is December, although many argue that lackluster economic data could lead policy makers to wait until next year.
The Fed has held its short-term rate near zero since the end of 2008.
“I think the Fed wants to go in December. I think the window is harder today” than last March, said Rick Rieder, chief investment officer for bonds at BlackRock Inc. in New York. “The economy is coming off the boil.”
Rieder said it’s not important when the Fed raises rates, but how quickly and for how long once it starts. The Fed uses interest rates to manage the economy; it cuts them to spur borrowing and spending when the economy is weak, and raises them when the economy is gaining steam to prevent overheating.
Central bankers are charged with maintaining a delicate balance. If the Fed holds rates too low for too long, it risks sparking inflation and creating bubbles. If it raises them too high, too quickly, it could push the economy into recession.
Inflation has been running below the Fed’s target of 2 percent, and central bankers have indicated that they want to see it climb nearer that level before raising rates. Rieder, however, called 2 percent “ridiculous.” A more realistic target is 1-to-1.5 percent, he said, in part because new technologies help the economy grow without adding costs.
Fuss said he worries about some things at least as much as the Fed, like disorder in Congress. The threat of the Republican-controlled Congress failing to raise the nation’s debt limit and technically defaulting is “clearly hurting our credibility” overseas, Fuss said.
He singled out peace as the single best thing that could happen for markets. With conflicts raging in the Middle East and “an underlying trend that involves the military,’’ he said, “that, just point-blank, is not good.”
He said international matters — good and bad — preoccupy the central bank more than in the past. That came into focus in September, when the Fed delayed raising rates in part due to turmoil in global financial markets, spurred by concerns of slower growth in China.
This eye on foreign affairs is contributing to the Fed’s indecision, Fuss suggested. Although the Fed’s mission is help the economy while keeping a lid on inflation, the central bank is now figuring the impact of international conditions into the equation.
“It’s still outside their mandate,’’ Fuss said, “but it’s gradually becoming accepted.”