<\/p>\n
Somebody had to say it.\u00a0<\/p>\n
Why not billionaire investor Ray Dalio?<\/p>\n
The founder of Bridgewater Associates says the U.S. economy has devolved into stagflation.<\/p>\n
Hence, it would be wrong for potential Federal Reserve Chair successor Kevin\u00a0Warsh to lower interest rates — which President Trump has been demanding for all of his second administration.<\/p>\n
Warsh, who now has a clear path to succeeding Jerome Powell as the next leader of the Fed in mid-May, would risk damaging confidence in the central bank at a critical moment if he were to cut interest rates, Dalio told CNBC on April 27.<\/p>\n
\u201cWe are certainly in a stagflationary period,\u201d Dalio said, adding that persistent inflation pressures alongside slowing growth create a backdrop that demands extreme caution from policymakers.<\/p>\n
How stagflation affects the economy<\/p>\n
The Fed\u2019s dual congressional mandate is to ensure the U.S. economy is in balance with maximum employment and stable prices.<\/p>\n
More Federal Reserve:<\/p>\n
Fidelity delivers sobering interest-rate message amid Fed pause<\/p>\n
Stagflation is a rare and challenging economic phenomenon characterized by the simultaneous occurrence of stagnant economic growth, high inflation and high unemployment.<\/p>\n
Stagflation often arises from a supply shock in oil prices or a disruption in global supply chains.\u00a0<\/p>\n
Sound familiar? It should, especially given the global economic conditions brought on during the last eight weeks by the Iran War.\u00a0<\/p>\n
Supply shocks increase production costs across the economy, forcing businesses to raise prices while simultaneously cutting input and reducing their workforce.<\/p>\n
Stagflation creates a monetary-policy nightmare<\/p>\n
Because stagflation is driven by supply instead of excess demand, the Fed\u2019s usual economic fixes become double-edged swords.<\/p>\n
It creates a policy nightmare for central banks because their primary tools for managing the economy are often at odds.<\/p>\n
Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral.Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity.<\/p>\n
Related: Bullish investors eye clarity on Warsh Fed rate path<\/p>\n
In most cases of stagflation, central banks prioritize price stabilization, as last seen in the United States during the late 1970s and early 1980s.<\/p>\n
So this often requires aggressive interest-rate hikes to break inflation, even at the cost of a deep but temporary recession to restore long-term growth.<\/p>\n
Latest inflation, jobs and GDP rates<\/p>\n
As I\u2019ve reported, several Wall Street firms say inflation will now be closer to 3% this year than the Fed\u2019s 2% target, eating into disposable incomes and keeping a lid on hiring.<\/p>\n
Headline PCE, the Fed\u2019s preferred inflation gauge, rose to 2.85% in February. It\u2019s the fifth straight year inflation has been higher than the Fed\u2019s own 2% target.The March unemployment rate dropped to 4.3% in March from 4.4% in February and nonfarm payrolls added 178,000 jobs to significantly beat market expectations.Real GDP growth for the fourth quarter of 2025 was 0.5%, a sharp deceleration from the 4.4% growth seen in Q3.Dalio warns against Fed interest-rate cuts<\/p>\n
Dalio cites inflation figures moving farther from the Fed\u2019s 2% target as proof that rates need to remain steady in the short term.<\/p>\n
\u201cCertainly, you would not cut interest rates now,\u201d Dalio said. \u201cYou will lose your credibility. The Federal Reserve would lose its credibility, particularly now.\u2019\u2019<\/p>\n
\u201cIf you look at monetary policies by other countries, you\u2019re not going to see them cutting,\u201d he said. \u201cSo whatever your benchmarks are, you\u2019re not going to be inclined to cut\u2026 not with today\u2019s information.\u201d<\/p>\n
FOMC expected to leave rates steady this week<\/p>\n
Traders are currently pricing in a 100% chance that the Fed will leave rates unchanged at the Federal Open Market Committee April 28-29 meeting, with fed funds futures indicating policy is most likely to stay on hold for the rest of this year through late 2027, according to the CME FedWatch Tool.<\/p>\n
John Luke Tyner, head of fixed income at Aptus Capital Advisors, told TheStreet that market expectations for interest-rate cuts have been little changed, even with an almost guarantee of Warsh\u2019s confirmation before May 15.<\/p>\n
\u201cMarkets continue to see price pressures from elevated energy prices as a hindrance from President Trump (and Mr. Warsh) getting his way with lower rates. This will likely be the case until the Iran situation is resolved, but it could be a big market mover in the second half of 2026,\u2019\u2019 he said.<\/p>\n
Related: Investors question Warsh\u2019s future impact on markets<\/p>\n
#Billionaire #Dalio #drops #bold #oneword #warning #Fed #rate #bets<\/p>\n","protected":false},"excerpt":{"rendered":"
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