Billionaire and founder of the world’s largest hedge fund, Ray Dalio, believes that stagflation – a scenario with low growth and high inflation – will come. He also expects the pain to be so great that central banks will have to cut interest rates in 2024.
– We believe that the world is in a tighter mode that can cause corrections and downward movements in many asset classes, Ray Dalio says to Australian Financial Review.
– The pain of stagflation will be so great that it forces the central banks to let go again, probably near the next presidential election in 2024.
The US Federal Reserve has raised interest rates twice this year, and further rate hikes are in the cards to tame inflation, which is at its highest level in 40 years.
Stagflation is possible
– It is the structural inflation that will lead to stagflation, says Dalio.
Dalio already mentioned inflation as a possible scenario last year.
He also claims that the high inflation can be attributed to continuously high spending by governments and companies, with declining returns in both cases.
– There will be a larger share of expenses than income. It will be deficit. It will continue for a long time, and for that reason our fund will not sit on cash or bonds, says Dalio, and continues:
– There are assets to be held on during a contraction and there are assets to be held on during a relief. In either case, right now, we will not be sitting on debt assets. We favor assets that are hedged against inflation.
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