Billionaire investor Ray Dalio says the United States is unambiguously in a stagflationary period, and that any move by the Federal Reserve to cut interest rates in the current environment would be a serious and damaging error.
In a new CNBC interview, the billionaire investor says it would be a costly mistake for incoming Fed Chair Kevin Warsh to cut interest rates.
According to Dalio, the data suggests that inflation is still on the up and up, and a rate cut would make people question the Fed’s credibility.
“Because of the issues that are here in terms of a more immediate inflation, farther from the target, and also the credibility that everybody’s going to look at how he behaves in terms of monetary policy. If you were to ask that question to almost anybody who’s objective, they would say, ‘Certainly, you would not cut interest rates now. You will lose your credibility.’ The Federal Reserve would lose its credibility, particularly now, almost at any time.”
Data from the Bureau of Labor Statistics (BLS) shows that the Consumer Price Index (CPI), an inflation measure, surged to 3.3% in March.
Dalio also says the US economy is in stagflation, or a period of slow economic growth (stagnation), high unemployment and high inflation.
“We are certainly in a stagflationary period. Now, how that transpires has a lot of parts to it, but we’re certainly in that. And if you look at monetary policies by other countries, you’re not going to see them cutting. OK, so whatever your benchmarks are, you’re not going to be inclined to cut the monetary policies, not with today’s information.”
The billionaire says the Fed should wait for inflation to return to its 2% target or for unemployment to rise before cutting rates.
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