Pacific Investment Management Co.'s Bill Gross and Jan Hatzius at Goldman Sachs Group Inc. (GS) say investors should prepare for additional bond purchases by the Federal Reserve to combat a slowing U.S. economy.

A decision to buy more debt is "getting closer," Gross, who runs Pimco's Total Return Fund, the world's largest mutual fund, wrote on Twitter yesterday. Hatzius, the chief economist at New York-based Goldman Sachs, predicted in a report the same day that the Fed will announce additional monetary easing when it meets in June.

Prospects for a third round of central bank asset purchases, known as quantitative easing, or QE, increased after a Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the smallest gain in six months. Europe's debt crisis is threatening to slow global growth. Ten-year Treasury yields fell to 1.81 percent yesterday, approaching the record low of 1.67 percent set Sept. 23.

"In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for U.S. monetary policy makers," Hatzius wrote. "We have stuck with our forecast of some additional monetary easing" at the Fed's policy meeting June 19 to June 20.

David Fuller's view My take on the prospect of QE3 is that the Fed has been hoping to avoid it, not least because it would be a partial admission that their earlier, massive QE efforts had failed to ignite a self-sustaining economic recovery. However, the Fed remains under pressure to stimulate employment, not least in an election year.

I do not doubt that the two gentlemen quoted by Bloomberg above would welcome QE3, as would many other investment managers and most investors. The Fed's earlier stimulative measures have been instrumental in supporting stock markets and fuelling the bigger rallies seen in recent years, although we should also be aware of the longer-term risks that this policy entails.

Whatever happens in future, it has already been a challenging investment environment since 2008. I remain optimistic that we will avoid another sell-off of the severity seen that year, but equally, there is little reason to expect that halcyon multiyear bull markets will return anytime soon.

Nevertheless, as an investor I continue to favour equities, not least because there is very little real return from government bonds or cash. However, in compensation for the volatility that we have often seen in equities, plus the risks of slower GDP growth, we should have the consolation of attractive, reliable dividends for a substantial portion of our investment capital.