Dalio Says Virus Threat Needs a Coordinated Economic Response

(Bloomberg) -- Ray Dalio says the economic impact of the coronavirus outbreak will require a coordinated fiscal and political response as central banks run perilously low on ammunition.

The U.S. Federal Reserve’s limited ability to cut rates and carry out quantitative easing won’t be enough to counteract the fallout from the spreading virus, the billionaire founder of Bridgewater Associates wrote in The Financial Times on Monday. Affected people and companies will instead need financial support to cope with temporary dips in their incomes, he said.

“Anyone who is knowledgeable and plain-speaking will tell you that the negative economic impact of the coronavirus outbreak will probably be big, that monetary policy will be of little use to counteract it, and that coordination between political leaders and central bankers is both essential and unlikely,” said Dalio.

Dalio said the global economy has been facing a confluence of events similar to the 1930s: an expectation of a downturn; a heavily indebted U.S. economy; low interest rates; and a need for effective coordination between policy makers.

Back then, “the key differentiating factor between success and failure was the ability of fiscal and monetary policy leaders to coordinate,” he said.

Those likely to be hardest hit by coronavirus need to be protected by policies including bridge loans and financial assistance, says Dalio. He compared the outbreak to a natural disaster, such as a hurricane, that warrants support for “responsible people and companies that would otherwise be broken by it.”

“The Fed might need to come in to hold interest rates down, if need be by printing money and monetizing the debt,” said Dalio. “While this fiscal-monetary co-ordination is controversial, it is the best policy under the circumstances of the economy now being so indebted and with other forms of stimulation ineffective.”

It’s the latest in a series of commentaries Dalio has made on the virus. He last month said on Twitter that it would have a “significant temporary effect but won’t have a big long term influence.”

To contact the reporter on this story: Chris Bourke in London at cbourke4@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

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