US Federal Reserve raising interest rates could “take the economy down,” according to billionaire. Ray Dalio.
In a recent LinkedIn post, the Bridgewater Associates The founder said that raising interest rates to around 4.5% – to offset inflation – will cause stock prices to fall by 20%.
“It looks like interest rates are going to have to rise sharply (towards the top end of the 4.5% to 6% range),” Dalio said wrote. “This will reduce private sector credit growth, which will drive down private sector spending and therefore the economy.”
Dalio released his thoughts on Tuesday, September 13th, a day when markets were charted worst sell off since June 2020.
See also: Dalio calls the Fed “naive and inconsistent” for raising interest rates
Dalio, who manages more than $150 billion in assets, making Bridgewater the largest hedge fund in the world, also made other predictions:
- Average inflation rate. The markets expect 2.6%. But his “estimate” is that it will be around 4.5% to 5% in the long term, and “significantly higher” in the event of economic shocks (eg wars in Europe and Asia or environmental disasters).
- Inflation will fall slightly. Certain shocks will dissipate, but inflation will “rebound” to 5% in the medium term. Dalio is “very uncertain” about this estimate and will not explain it because “it would take too long”.
- The US yield curve: It will remain “relatively flat” until there is “an unacceptable negative impact on the economy”. Dalio also “estimates” inflation and real yields, coming in at 4.5% to 6% on both long and short rates. The “upper end of this range would be unbearably bad for debtors, markets and the economy.”
Scott Minerd, the Chief Investment Officer Guggenheim Partners, also predicts stocks could face another 20% drop. He is based his prediction on the S&P 500 P/E multiple historically tends lower when inflation is higher.
The annual change in the core price consumer spending index is…
