- Ray Dalio said the Federal Reserve will have to cut interest rates to combat stagflation in a recent interview.
- Stagflation refers to a combination of soaring inflation and sluggish growth.
- "We are in a tightening mode… the pain of that will become great," Dalio said.
Ray Dalio said he expects central banks around the world to start cutting interest rates by 2024 as stagflation hits the global economy.
The billionaire investor said he expects a period of sustained inflation to harm US markets to such an extent that the Federal Reserve is forced to start slashing rates before the 2024 election.
"We are in a tightening mode that can cause corrections or downward moves to many financial assets," Dalio, the founder and co-CIO of Bridgewater Associates, told the Australian Financial Review. "The pain of that will become great and that will force the central banks to ease again, probably somewhere close to the next presidential elections in 2024."
Stagflation refers to a combination of high inflation and sluggish growth. It can be disastrous for stock markets, as it's associated with high unemployment, lower consumer spending, and reduced profits.
Inflation eased slightly to 8.3% in April – but it's still running dangerously close to record highs. Dalio doesn't expect the Fed to tame soaring prices anytime soon.
"It is a structural inflation situation that is going to produce stagflation," he said.
Low growth is also contributing to the concerns about stagflation. The World Bank recently warned a recession will be "hard to avoid" and slashed its global growth projection from 4.1% to 2.9%, while the OECD cut its forecast by 1.5 percentage points.
Dalio told the Financial Review he's avoiding fixed income, but investing in inflation-hedged assets like pricing power stocks and commodities.
"There are assets to hold during a tightening and there are assets to hold during an easing," he said.
"In both cases, right now, we don't want to own debt assets," Dalio added. "We favor inflation hedged assets."