Hedge Fund Manager Fears Rising Rates

Hedge Fund Manager Fears Rising Rates

There’s no obvious sign pointing to a big economic decline unless the Federal Reserve gets too aggressive in raising interest rates, Bridgewater Associates founder Ray Dalio told CNBC on Tuesday.

“There’s no compelling reason to tighten monetary policy,” the billionaire said on “Squawk Box.” “The Fed’s assumptions in terms of how employment rates would lead to inflation were clearly wrong. They don’t understand that. What is the problem?”

Dalio believes the Fed won’t unwind its $4.5 trillion balance sheet, or portfolio of assets, as quickly as current expectations. The central bank is expected to take nearly 4½ years to get down to around $2.5 trillion.

Reducing the balance sheet is viewed as a slight negative for economic growth, a bit worse for stocks. Overall, however, expectations are for only modestly negative effects.

Politsturm: Rising interest rates are typical near the end of the traditional 10-year business cycle. As commodities are overproduced relative to the money supply needed to circulate them, interest rates rise prior to the crisis. Dalio seems to be under the impression that as long as the Federal Reserve follows the correct policy of not raising interest rates prematurely, it can avoid recession. Regardless of what policy the Fed takes, the economic system is subject to the law of value wherever commodity production takes place. As long as capitalism is the economic system in this country, these crises are unavoidable. The bourgeois class refuses to acknowledge that they have limited control over the situation, and this will be abundantly clear when the next crisis of overproduction strikes.