Pimco expects Fed to begin raising rates in September

"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)