Billionaire investor and Bridgewater Associates founder Ray Dalio has cautioned that the U.S. economy has entered a period of stagflation. He stated that if Kevin Warsh, a potential successor to the Federal Reserve chair, opts to cut interest rates amid elevated inflation and slowing growth, it would be a mistake and could harm the central bank’s credibility. Dalio remarked on Monday that the U.S. is clearly in a stagflationary phase and policymakers should remain cautious rather than rushing to ease monetary policy. He noted that a rate cut by Warsh in the current environment could not only weaken market confidence in the Fed’s ability to control inflation but also damage the institution’s credibility at a critical time. "This is certainly not the time to cut rates," Dalio said. "Otherwise, credibility will be lost—the Fed will lose credibility. Especially at this stage, if you look at monetary policies in other countries, you won’t see them cutting rates either. So, no matter what benchmark you refer to, there’s no reason to lean toward cutting rates given current information." Dalio’s comments come as markets closely watch potential leadership changes at the Fed. With current Chair Jerome Powell’s term set to expire in mid-May, Warsh is increasingly seen as a clear candidate for the role. Meanwhile, interest rate market expectations also support maintaining the status quo. According to the CME FedWatch Tool, traders currently assign a 100% probability that the Fed will keep rates unchanged at this week’s meeting, with federal funds futures indicating a high likelihood of policy remaining on hold throughout the year. Market observers believe Dalio’s views highlight that the focus of current policy discussions has shifted from "when to cut rates" to "whether high rates should be maintained for longer." Against a backdrop of persistent inflation, fiscal stimulus, and ongoing enthusiasm for artificial intelligence investments, doubts remain about premature policy easing. Beyond monetary policy, Dalio also discussed asset allocation. He noted that despite the ongoing conflict between the U.S., Israel, and Iran, the recent strong rebound in U.S. stocks is justified, primarily supported by resilient corporate earnings. However, he also recommended allocating 5% to 15% of investment portfolios to gold, describing it as an "effective diversification tool."
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