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Bridgewater’s Dalio sees Fed moving towards more QE

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 21, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - Before delving into the details of the interview given by Bridgewater Associated Chairman, Ray Dalio to CNBC’s Andrew Ross Sorkin and Becky Quick yesterday, it might be worth the while to have a look at the current economic scenario prevailing in the US.

    The CPI data was released yesterday and the Fed cannot be expected to be too happy about the 0.1 per cent drop inflation seen in December. Retail prices fell in the holiday season, a time when they can actually be expected to stay high. These factors show a decline in consumer sentiment. Inflation has stayed way below the Fed’s 2 per cent inflation target for three years now. The strong dollar is keeping prices on check on one hand and hurting exporters on the other. Manufacturing sector is reeling under the downward pressure created by oil slump and strong currency.

    Also, the financial markets had a horrible start to the new year. In the very first trading week, China’s trading activity was suspended and yuan was devalued twice causing markets everywhere to tumble. Investors became jittery and the fear of a China slowdown reflected in the performance off the major markets around the world. The weakening of the emerging markets particularly China has been plaguing policy makers in the more developed countries.

    Dalio sees lower growth rate in the coming months

    Ray Dalio, founder of the world's largest hedge fund told CNBC's "Squawk Box" at the World Economic Forum in Davos, Switzerland that amidst this turmoil in the financial markets and growth concerns back home, the Fed will not tighten monetary policy at all. He said that the Fed is likely to ease further. "I think a move to a quantitative easing would bolster psychology," he said. Dailo sees a lower growth rate, about 1.5 per cent in “six months from now” and thus feels that the central bank should not be very rigid about following a particular path. The Fed hiked rates in December, the first such move in more than nine years and said it would raise rates four times in 2016.

    He feels that "The risks are asymmetric on the downside, because asset prices are comparatively high at the same time there's not an ability to ease.” The excess fund injected into the financial system in the wake of the crisis caused asset prices to shoot up. Dalio fears the rise of a “negative wealth effect” given that the excess fund is now stuck in the market. He warned that “if assets remain correlated” then “there’ll be a depression.” He noted that these asymmetric risks exist all around the world and thus feels that every country is required to have an easy monetary policy.

    He also added that apart from convenient monetary policy from the central bank US also needs to see movement on fiscal policy from lawmakers.
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