Rates Going to 4.5% Would See Stocks Fall by 20% – Ray Dalio

By Senad Karaahmetovic

Ray Dalio, co-chief investment officer and founder of Bridgewater Associates, sees the risk of U.S. equities falling below June lows as the Fed continues to aggressively tighten its monetary policy.

Dalio believes inflation in the U.S. over the next 10 years will be around 4.5% – 5% long term, while some unexpected shocks would push it “significantly higher.” He notes that the markets are now discounting 1% percent for the next 10 years.

“In the near term, I expect inflation will fall slightly as past shocks resolve for some items (e.g., energy) and then will trend back up towards 4.5 percent to 5 percent over the medium term,” Dalio said in a LinkedIn post.

The higher the inflation over the long term the more action it would require from the Fed to cool it down and push it towards its long-term target of 2%. A rise in rates to 4.5% could see stocks fall 20% on average.

Dalio’s comments are consistent with remarks made by Bridgewater’s co-chief investment officer Greg Jensen recently.

“In aggregate, let’s say asset markets decline at something like 20% to 25%,” he told Bloomberg.

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