Join NexChange - the professional
network for the financial services
industry - and receive a free one-
year subscription to Forbes
Ray Dalio Says Chances of Recession Hitting Before Next U.S. Presidential Election Are Rising
While Ray Dalio believes that the current selloff in the global markets is a “minor correction,” the Bridgewater Associates founder sees the possibility of another recession in the U.S. now increasing.
Dalio does not see any near-term risk to the economy, but in a new blog post on LinkedIn, he says “the risks of a recession in the next 18-24 months are rising.” In other words, this recessionary threat would coincide with the next presidential election.
“While most market players are focusing on the strong 2018, we are focusing more on 2019 and 2020 (which is the next presidential election year),” Dalio wrote. “Frankly, it seems to be inappropriate oversight to not be talking about the chances of a recession and what that recession might look like prior to the next election.”
Dalio notes that we are currently in the “late-cycle” portion of the short-term debt/business cycle, when “central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult.” He adds that “recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was.”
These reports understandably led to the reactions in bonds, which affected stocks as they did. Then on Friday, we heard the announced budget deal that will produce both more fiscal stimulation and more T-bond selling by the Treasury, which is more bearish for bonds. And soon ahead, we will hear about a big (and needed) infrastructure plan and the larger deficits and more Treasury bond selling that will be needed to fund them. In other words, there is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises driven by the markets. The Fed’s reactions to them and the amount of real (inflation-adjusted) rate rises that will result will be very important, so we will be monitoring this closely.
In addition to his belief that “the powers of central banks to reverse contractions are more limited than they have ever been,” Dalio’s other main concern is that “there is such a big gap between the haves and the have-nots (which creates social and political sensitivities).”
Photo: Getty iStock