Legendary investor Ray Dalio says the stock market needs to fall more before a recession succeeds

For much of this year, the Fed has stuck firmly to its goal of a “soft landing” for inflation, the idea of ​​overcoming inflation without a significant economic downturn.

But despite several interest rate hikes, inflation is still running hot, and business leaders are saying it’s not a question of if a recession will happen, but when.

On Wednesday, after another rate hike, and a pledge by Fed Chairman Jerome Powell to stay the course until inflation comes down, Bridgewater founder Ray Dalio said the Federal Reserve is likely to keep its monetary policy tighter until prices come down. high down, no matter the consequences. As a result, a recession is likely within the next year.

“You’re starting to see all the classic early signs,” he said during an interview MarketWatch Editor-in-Chief Mark DeCambre during the inaugural “Best New Ideas for Money” festival. Those signs, he said, are a contraction in the housing and auto sectors, which will be the first to be affected by the Fed’s higher interest rates.

This is not the first time Dalio has sounded the alarm about impending economic trouble. In June, he was already arguing on LinkedIn that the Fed’s arrival was a soft landing, even as Bridgewater beat the bear market in the first half of this year, delivering a 32% return to investors like other firms struggling.

Dalio’s comments followed the Fed’s decision this week to initiate its third consecutive 75 basis point rate hike this year. Before June, the last time the bank made such a big rate hike was 1994.

Those hikes have already slowed U.S. economic growth significantly, according to Dalio.

“We’re very close to a 0% growth year right now,” he said. “I think it will get worse into 2023 and then into 2024, which has implications for elections.”

After the Fed’s rate hike on Wednesday, the S&P 500 fell 1.7% to a two-month low. Dalio joined other billionaire investors like Carl Icahn and said the stock market will sink further this year as the Fed continues to tighten, adding that the bond market will be hit hard.

“Who’s going to buy those bonds?” Dalio asked, noting that a ten-year “bull market” in bonds has been marked by rising prices. “Now you have negative negative results in the bonds … and you got them down.”

Last month, Federal Reserve Chairman Jerome Powell said the central bank will stop at nothing until inflation is under control, even if it meant “some pain for families and businesses.”

This week, it was even clearer about the cost. “We have to put inflation behind us. I wish there was a painless way to do that. No.”

That pain, said Dalio, will be felt over the next few years. “The Fed always has a trade-off,” he said, between economic strength and inflation. With inflation now the bank’s target, it will chart a course until “economic pain” is deemed more severe than inflation.

At that point, the bank will begin to scale back its rate hikes. “Now we play the game what level will it be?” Dalio said.

This story originally appeared on Fortune.com

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