The downward path of US house prices and the unwind of related derivatives will dominate US Federal Reserve policy for several years, according to Bill Gross, chief investment officer of US bond manager Pimco, who believes interest rates will decline by a further one percentage point.

Following the US Fed's 50 basis point rate cut on September 18 to 4.75%, Gross believes that using a 2.5% rate of inflation assumption, rates will fall to 3.75% in the next six to 12 months.