Ray Dalio says policymakers may be forced to raise taxes if Fed hikes fail

Ray Dalio says policymakers may be forced to raise taxes if Fed hikes fail
The multibillionaire founder and CIO of Bridgewater Associates says the Great Wealth Transfer is why the Fed's inflation levers aren’t working as expected.
AUG 04, 2023

The large amount of new wealth in America’s private sector is causing the Fed a headache according to Ray Dalio.

The veteran investor, worth more than $19 billion, says that the reason the economy isn’t slowing as might be expected given rate hikes over the past year, is because of the Great Wealth Transfer.

Writing on LinkedIn, the founder and CIO of hedge fund titan Bridgewater Associates said the co-ordinated transfer of wealth from the public sector (central government and central bank), and holders of government bonds, to the private sector (households and businesses) means that the economy is more resilient and people and organizations are less sensitive to rate hikes.

That means that the government’s balance sheets and income statements are in bad shape due to running large deficits and losses from government bonds they bought to fund government debt, while household finances in relatively good shape.

Commenting on 2022, Dalio wrote: "The private sector’s net worth rose to high levels, unemployment rates fell to low levels, and compensation increased a lot, so the private sector was much better off while central governments got a lot more in debt, and central banks and other government bondholders lost lots of money on those bonds.”

WHAT NEXT AFTER RATE HIKES?

While the Fed could continue to hike interest rates, the cost of government borrowing may require policymakers to pull some other levers, Dalio believes.

He expects the government to generate wealth through taxes and printing money and opines that this should not be a problem in the near term.

However, later on there is the risk that current borrowing and that required by future budgetary demands could create a “self-reinforcing debt spiral that will lead to market-imposed debt limits while central banks will be forced to print more money and buy more debt as they experience losses and deteriorating balance sheets.”

Dalio said that he is not certain that this will be the case, but it’s certainly possible.

The 73-year-old investor ended his lengthy LinkedIn post by saying that he is sharing his insights not as a job but because “at my stage in life I’m passing this stuff along to be helpful.”

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.