Bridgewater founder Ray Dalio has downgraded his expectations for a recession hitting the U.S. before 2020 to a roughly one-in-three chance, citing the Federal Reserve’s firepower as a reason for optimism.
About 18 months ago, Dalio still saw the risk of a near-term recession at 50-50, or roughly a coin toss.
In a post on LinkedIn, Dalio said a weakening of financial markets led the Fed to see weaknesses in the economy and inflation data, causing it to pivot to a more accommodative policy posture after clockwork-like rates hikes in 2018. Dalio believes that the softer stance means that the central bank has the willingness to rollout fresh stimulus, if necessary. Specifically, the head of the world’s largest hedge fund said, as opposed to central banks in Europe and Japan, Jerome Powell’s Fed is in a better position to lower interest rates to boost economic activity.
The Fed last raised interest rates in December to a range of 2.25%-2.50%, and Dalio says current levels should give policy makers sufficient wiggle room to effectively lower them should economic weakness swirling abroad crop up domestically.
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A period of synchronized global growth in the early part of 2018 has given way to newfound concerns about expansion in much of the developed world. Indeed, the European Central Bank has recently been weighing fresh stimulus in the form of cheap loans to eurozone banks, known as targeted longer-term refinancing operations, or TLTRO.
And so far, neither the ECB nor the Bank of Japan have raised rates since slashing them to lows in the wake of the financial crisis.
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