Bridgewater’s Ray Dalio warns the Fed may lose control of the economy

Bridgewater Associates founder Ray Dalio has added to his recent bearish predictions.

The head of the world’s largest hedge fund warns that the Fed lacks ammunition to address future economic crises. Dalio said that the central bank used up most of its bullets in the wake of the 2008 downturn.

‘Dovish’ has its limits

Dalio notes that the Fed tackled the last crisis through monetary easing. “But the power to do this is limited,” Dalio said. “Think of central banks cutting interest rates and purchasing financial assets (QE) as shooting doses of stimulants into their economies and markets.”

After all, there is a limit to how low interest rates can go: zero.

Roughly $14 trillion in global debt is now tied to negative interest rates.

“Central banks are running out of stimulants,” Dalio said. “Interest rates are already very close to zero, and the Fed pushing more money into the system by printing it and buying financial assets will soon push the expected returns for equities and other assets as low as they can go.”

A recession is increasingly possible

Dalio last made headlines after he penned a lengthy LinkedIn article advocating for investors to buy gold. It was a surprising release from the hedge fund manager.

In the article, Dalio predicted a global paradigm shift where investors would turn to assets outside of stocks to generate higher returns.

Given that the current economic expansion and equity bull run are a decade old, the chances of a downturn are much higher.

However, the Fed and other central banks around the world have less room to cut interest rates than they had the last time a crisis unfolded.

Why? Because policy-makers did not normalize interest rates and balance sheets during the course of the present upcycle.