Pimco expects Fed to begin raising rates in September

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"While the process will likely be slow compared to past rate hike cycles, if the Fed manages to stabilize inflation at its target of 2 percent, then the central bank should get to the neutral policy rate of 2 percent–2.5 percent within a couple of years," Mather said. The neutral rate is the point at which the rate is neither stimulative nor contractionary.

Mather, one of three co-managers of the flagship Pimco Total Return Fund, the second-largest bond fund in the world, said, "extraordinary policy response of the past few years could result in more inflation than expected."

Newport Beach, California-based Pimco, which oversees $1.59 trillion as of March 31, said it sees value in inflation-linked bonds, which are mispriced given the firm's view that inflation will be back to target levels "relatively quickly" and "may even exceed them for a few years."

(Reporting by Jennifer Ablan; Editing by Jeffrey Benkoe and Matthew Lewis)