Billionaire and founder of the world’s largest hedge fund, Ray Dalio, believes that stagflation – a scenario of low growth and high inflation – is coming. He also predicted the pain would be so great that the central bank would have to cut interest rates by 2024.
– We believe that the world is in a tighter mode which could lead to corrections and downside moves across many asset classes, Ray Dalio told Australian Financial Review.
– The pain of stagflation will be so great that it forces the central bank to release it again, possibly ahead of the next presidential election in 2024.
The US Federal Reserve has raised interest rates twice this year, and further rate hikes will be made to tame inflation, which is at its highest level in 40 years.
Stagflation is possible
– It is structural inflation that will lead to stagflation, Dalio said.
Dalio already mentioned inflation as a possible scenario last year.
He also claims that high inflation can be attributed to persistently high spending by governments and companies, with declining returns in both cases.
– There will be a larger share of expenses than income. This will be a deficit. This will continue for a long time, and for that reason our funds will not be held in cash or bonds, Dalio said, and continued:
– There are assets to be held during contraction and there are assets to be held during relief. In either case, at this time, we will not be sitting on debt assets. We like assets that are protected against inflation.
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