Dalio Says Inflation Heightens Risk of an Earlier Fed Rate Hike
“Our basic situation is that we are spending a lot more money than we’re earning,” Dalio said in the interview.
(Bloomberg) -- Ray Dalio, founder of Bridgewater Associates, said rising inflation could force the Federal Reserve to raise rates earlier than anticipated.
“Think of the economy as being like an individual and their pulse is dropping,” Dalio said in an interview with David Westin on Bloomberg TV. “When the pulse is dropping the doctors come running in with the stimulant and they inject the stimulant. Now that the economy is rebounding inflation pressures are rebounding.”
Dalio’s remarks are in line with comments Greg Jensen, his co-chief investment officer, made this week. He said that he expected economic conditions and inflation will adjust faster than either markets or the Fed are expecting.
Fed Chair Jerome Powell stressed on Wednesday that the central bank won’t raise interest rates until the U.S. economy shows tangible evidence that it has fully healed from Covid-19.
“Our basic situation is that we are spending a lot more money than we’re earning,” Dalio said in the interview.
In a LinkedIn post this week, Dalio wrote that “the economics of investing in bonds (and most financial assets) has become stupid. Rather than get paid less than inflation why not instead buy stuff — any stuff — that will equal inflation or better?”
He also said in the post that assets in the mature developed reserve currency countries will underperform the Asian emerging markets, including China, adding that Chinese bond holdings by international investors are rising fast.
Dalio’s flagship hedge fund, Pure Alpha II, lost about 1% so far this year, following a record 12.6% decline in 2020. The $150 billion firm saw several institutional clients pull their money in the wake of the poor performance last year.
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