If rates hit 4.5%, stocks will drop 20%


By Senad Karaahmetovic

Ray Dalio, co-chief investment officer and founder of Bridgewater Associates, believes there is a risk of US equities falling below June lows as the Fed continues to aggressively tighten its .

Dalio believes that US inflation for the next 10 years will be around 4.5%-5% in the long term, while some unexpected problems would make it rise “considerably”. He points out that markets are now pricing in 1% for the next 10 years.

“In the short term, I think inflation will ease slightly as past problems are resolved in some areas (eg energy) and then trend upwards again towards 4.5% or 5% in the medium term Dalio says in a LinkedIn post.

The higher long-term inflation is, the more action the Federal Reserve will need to cool it down to its long-term target of 2%. A rate hike to 4.5% could send shares down an average of 20%.

Dalio’s comments align with recent remarks made by Bridgewater’s co-chief investment officer, Greg Jensen.

“Taken together, let’s say asset markets are down 20% to 25%,” he told Bloomberg.

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