Pimco co-CIO Bill Gross says the fact that central banks are printing money "like gangbusters" could reignite inflation.
By adding "hundreds of billions" of currency into circulation, central banks "can produce reflation — that's why we’re seeing the pop in oil, gold" and other commodities, Gross told CNBC.
However, there’s also "the potential for deflation if the private credit markets can’t produce some sort of confidence and solvency going forward," says Gross. "So we’re at great risk here, not only in the U.S. but on a global basis."
Gross says he expects the Federal Reserve will keep interest rates 25 basis points for the next three to four years.
Though Gross's Total Return Fund, the world's largest bond fund, saw more than $10 billion in outflows in 2011, the fund began last year at $240 billion and ended it at $244 billion.
Gross, who has previously predicted a “paranormal” market in 2012 suffering from "credit and zero-bound interest rate risk" and fewer incentives for lenders to extend credit, says investors must lower their expectations for returns, with 2 percent to 5 percent as good as they will get this year.
Gross says he will manage the Pimco Total Return Fund ETF, slated to open on March 1, in the same manner as the Total Return Fund. "They're twins," he says.
According to Seeking Alpha, the Federal Reserve balance sheet has expanded from $869 billion on August 8, 2008, to $2.929 trillion on December 28, 2011.
This is an average increase per month of $55.1 billion or an annual increase of $661 billion.