Bridgewater Associates founder Ray Dalio is sounding the alarm that the Fed's efforts to bring down inflation will come at a great cost – stagflation.
Strategas CEO Jason Trennert discusses recession risk in the U.S., the Fed's handling of inflation and the impact of the current economy on everyday Americans.Chairman Jerome Powell was grilled over runaway inflation Wednesday, Bridgewater Associates founder Ray Dalio is warning that the Central Bank's efforts to tame scorching-hot inflation will likely lead to stagflation over the long term. , characterized by soaring consumer prices as well as high unemployment.
"I now hear it commonly said that inflation is the big problem so the Fed needs to tighten to fight inflation, which will make things good again once it gets inflation under control," Dalioon Tuesday. "I believe this is both naïve and inconsistent with how the economic machine works. That’s because that view only focuses on inflation as the problem and it sees Fed tightening as a low-cost action that will make things better when inflation goes away, but it’s not like that.
"The only way to raise living standards over the long term is to raise productivity and central banks don’t do that," he added.In order to do its job effectively, Dalio believes that Fed should be focused on using its powers to "drive the markets and economy like a good driver drives a car—with gentle applications of the gas and brakes to produce steadiness rather than by hitting the gas hard and then hitting the brakes hard, leading to lurches forward and backward.
However, he points out that the Fed's latest move from printing and buying debt at around $1.5 trillion annually to selling it at $1.1 trillion annually and sharply lowering and raising interest rates resulted in big lurches forward and backward.
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