The Federal Reserve is going to loosen monetary policy, not tighten it, says Bridgewater Associates founder Ray Dalio.
Dalio wrote to clients Monday that the Fed is too caught up in the short-term cycles in the economy and not the effects of near-zero interest rates, reports Reuters. If worldwide deflation happens, the Fed has no where to go, says Dalio. Writes Reuters:
“The ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias,” said Dalio, who helps manage $162 billion at Bridgewater. “Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.”
Dalio believes the Fed has been too reactive, and will do the same in the wake of the heavy market swings and global trouble. That could spell more quantitative easing instead of an interest rate rise. Then again, the Fed has been so vocal about raising rates in the latter half of 2015 that it may force the situation, even if it’s not ready to do so, he says. Either way, the Fed needs to look at more long-term trends, says Dalio.
Photo: Chris Butterworth