Billionaire investor Ray Dalio is concerned about the potential for a stagflationary economic backdrop amid persistently high inflation and rising interest rates.
“I think that we will most likely have a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of environment,” the founder and co-chief investment officer of Bridgewater Associates said in an interview for Yahoo Finance Presents.
Stagnation can be defined as a period of slow economic growth, rising unemployment and rising inflation.
And no matter where an investor turns (even on Google, where searches for “stagflation” are up 400% since the beginning of the year), it looks like a speeding train called the Stagflation Express.
The consumer price index (CPI) rose 7.9% in February, marking the fastest pace of annual inflation in 40 years, while prices for rent, groceries and used cars soared. Meanwhile, the index of personal consumption expenditure (PCE) rose 6.4% in February, accelerating from a 6.1% rise in January.
That was the highest inflation rate since 1982.
Oil prices are off their highs of around $140 a barrel at the start of the Russia-Ukraine war, but remain uncomfortably high above $100. National gas prices remain above $4 a gallon for regular unleaded gasoline, which is beginning to weigh on consumer confidence and retail store visits.
SAN FRANCISCO, CALIFORNIA – OCTOBER 02: Bridgewater Associates Founder and Co-Chairman/Co-CIO Ray Dalio speaks onstage during TechCrunch Disrupt San Francisco 2019 at the Moscone Convention Center on October 02, 2019 in San Francisco, California. TechCrunch is a sister publication of Yahoo Finance. (Photo by Kimberly White/Getty Images for TechCrunch)
As prices have risen across the economy, the Federal Reserve has started raising interest rates to cool things down. This, in turn, has sparked a yield curve inversion and a wave of pros voicing concerns about a sharp economic downturn this year, leading to the unemployment inherent in a stagflationary backdrop.
“We expect a more pronounced growth slowdown in 2023 and a rising unemployment rate with an increased risk of a mild recession,” warned Nomura economist Robert Dent.
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As for Dalio – whose new post on YouTube entitled “Principles for Dealing with the Changing World Order” is nearing an impressive 10 million views (perhaps underscoring the concerns many people have about the global economy at this time) – he is himself not sure if the Fed will be able to pull off a successful economic soft landing.
“So what you have is enough tightening by the Federal Reserve to adequately deal with inflation and that is too much tightening for markets and the economy. So the Fed is going to be in a very difficult place a year from now as inflation is still high and it’s starting to pinch both markets and the economy,” Dalio explained.
Brian Soci is a freelance editor and Anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.
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