Ray Dalio says Kevin Warsh shouldn’t cut interest rates in a ‘stagflation’ era
Billionaire investor Ray Dalio has warned that the US economy is entering stagflation and said it would be a mistake for his potential Federal Reserve chairman successor Kevin Warsh to cut interest rates.
The founder of Bridgewater Associates said slowing growth along with persistent inflationary pressures created a backdrop for policymakers to be cautious.
“We’re definitely in a stagflationary period,” Dalio said on CNBC’s “Money Movers” on Monday. “Because of the problems here, we are further away from target in terms of more immediate inflation.”
If Warsh, who is on track to replace Jerome Powell as the Fed’s next leader in mid-May, cuts interest rates, it risks damaging confidence in the central bank at a critical moment, Dalio said.
“Of course you wouldn’t cut interest rates right now,” Dalio said. “You’re going to lose credibility. The Federal Reserve loses credibility, especially now. … If you look at the monetary policies of other countries, you don’t see them cutting,” he said. “So whatever your criteria are, you won’t tend to cut it with today’s information.”
According to the CME FedWatch tool, investors are currently pricing in a 100% chance that the Fed will leave interest rates unchanged at this week’s meeting; Fed fund futures suggest policy will likely remain on hold for the rest of the year.
Dalio said the dramatic rebound in stocks makes sense because of the strength of corporate earnings despite the ongoing war with Iran. Still, he said he recommends a 5 percent to 15 percent allocation to gold as an “effective diversifier.”
