Ray Dalio Has a Dire Warning for Central Bankers Lombardi Letter 2016-10-28 09:29:34 U.S. economy interest rates bonds inflation growth gold commodities Ray Dalio says central banks have lost power to use low interest rates to produce growth. News

Ray Dalio Has a Dire Warning for Central Bankers

News - By John Whitefoot, BA |
Central banks

Dalio Says Central Banks Losing Rate Tool to Stimulate Growth

When the world’s largest hedge fund manager speaks, people listen.


Ray Dalio, founder and chairman of Bridgewater Associates, which manages a $150.0-billion fund for its investors, has a dire warning for markets where central bankers in the developed world have lost their power to use low interest rates to produce a higher growth.

“There’s only so much you can squeeze out of the debt cycle, and we’re there globally,” Dalio said during the Seeking Alpha conference in New York City on Tuesday. “You can’t lower interest rates more.” (Source: “Bridgewater’s Dalio: There’s a ‘dangerous situation’ in the debt market now,”CNBC, September 13, 2016).

Ray Dalio’s analysis on the central interest rate policies features the backdrop of a slowing global growth environment after over a decade of loose monetary policies in both North America and Europe.

Central bankers in these economies have uses various tools to induce growth, including near-zero benchmark interest rates, quantitative easing through bond purchase programs, and, more recently, selling bonds with negative yields.

According to Ray Dalio, these measures have so far failed to generate enough momentum in economic growth and the central banks are now in a dilemma on how to steer the economies away from the low-growth and low-inflation trap.

“We are to various degrees close to pushing on a string,” he said. (Source: Ibid.)

Ray Dalio’s assessment comes at a time when the policymakers at the Federal Reserve Bank are meeting next week to contemplate whether to raise interest rates or continue with the wait-and-see approach amid mixed signals from the world’s largest economy.

Equity markets in the U.S. dropped sharply this week on speculations that the Fed is leaning more towards raising interest rates after a long pause since December of last year.

But Ray Dalio also believes that the Fed shouldn’t need to raise interest rates now because bond prices are already accounting for the Fed being likely to raise interest rates, and this understanding is already keeping a lid on inflation, preventing the economy from overheating.

“It’s a risky thing to raise interest rates more than is discounted in the curve,” Dalio said. (Source: “Bridgewater’s Ray Dalio Says Fed Doesn’t Need To Raise Interest Rates,” Fortune, September 13, 2016).

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