Investors are fretting about whether inflation pressure will push the Federal Reserve into stepping up the pace of interest-rate rises — but that’s not what’s niggling at Ray Dalio, founder of the world’s biggest hedge fund.
The Bridgewater Associates co-chief investment officer said Tuesday he’s not too fussed about the current fears over rising inflation, but instead worries about what’s going happen when the current “Goldilocks” scenario ends.
“You never get [inflation] perfect, but it’s pretty good. So no, I’m not particularly concerned. What I am concerned about is as we go into the later parts of the cycles, the challenge of central banks will be to get it perfectly [right],” he said in an interview with Bloomberg on Tuesday morning.
“We’re in the Goldilocks part of the cycle. When it’s not too hot and it’s not too cold. When we have growth and we don’t have an inflation problem, that’s the beautiful part of the cycle,” he added.
But ”we’re going to be at a [place] where central banks will have a problem getting it right. I think a year or two from now,” said Dalio, whose hedge fund manages about $160 billion.
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The hedge-fund manager’s remarks echo comments he made in July last year, when he warned to watch out for central bankers trying to tighten monetary policy at a pace that’s exactly right — “until they don’t get it right, and we have our next downturn.”
But new Federal Reserve Chairman Jerome Powell promised Tuesday that the central bank will “continue to strike a balance” between avoiding an overheated economy and bringing price inflation to 2% — that is, achieve a faster pace of growth without triggering a boom-bust scenario.
In his maiden testimony before lawmakers on Capitol Hill, Powell also offered an optimistic outlook on the U.S. economy, spurring speculation the Fed is prepared to raise interest rates four times in 2018, instead of three, as the central bank has signaled.
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Dalio, however, said he didn’t want to forecast the right number of rate rises, as it depends on how “things transpire.”
“I do know, [the Fed] has to be careful that it’s not much faster than [what’s] discounted in the curve. And right now it’s between three to four [rate hikes], which is discounted in the curve. If they stick to that kind of pace, don’t think it’ll be particularly problematic,” the Bridgewater hedge-fund manager said.