For those of you that don’t know, Ray Dalio is a billionaire who earned his fortune through excellent investments. If that investment pedigree wasn’t enough, he is the founder of the biggest hedge fund in the world, Bridgewater Associates. Ray Dalio and Bridgewater Associates believe that the Fed increasing interest rates has hurt asset prices.Due to the nature of the current economy, the Fed will need to look at prices before they can look at economic activity, according to Dalio.
After the bull run that has been present all year, the third quarter of 2018 was not as kind to the Dow Jones industrial Average or the S&P 500, with them being down 5.2% and 7.3%, respectively. The NASDAQ has been hit hard as well, down more than 11% this quarter.
For Q4 of 2018 and into 2019, the Fed is expected to continue to raise interest rates, something that President Trump has been against. Trump, along with some economists and market bears, fear that the Fed is being overly aggressive in increasing interest rates, and in their aggression, may overshoot on their tightening of the economy.
Others, however, believe this is not the case. Some economists point to the data, with the economy at full employment and inflation at its target, and agree with what the Fed is doing. Additionally, the tax cuts and additional government spending will also stimulate the economy, creating further pressure that will be put on the Fed.
Whether the Fed will continue to tighten rates is up in the air, but for now, they have indicated they are committed to the continued tightening of the economy. In any event the Fed’s actions have huge implications on price, whether the Fed increases interest rates, lowers interest rates or does nothing, you can rest assured that the Fed’s actions are going to have an impact on asset prices moving forward.
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