Former hedge fund manager Ray Dalio has issued a warning regarding the US Federal Reserve's decision to ease monetary policy. He believes this action is inflating an economic bubble that could significantly drive up the prices of hard assets, while also signaling the final phase of a 75-year economic cycle.
Dalio explained in a post on X that the Federal Reserve typically eases interest rates during periods of economic stagnation or decline, falling asset prices, high unemployment, and credit scarcity. He cited historical examples such as the Great Depression of the 1930s and the 2008 financial crisis.
However, Dalio pointed out that the Fed is currently easing monetary policy despite low unemployment, economic growth, and rising asset markets. He characterizes this situation as typical of late-stage economies burdened by excessive debt.
This "dangerous" combination, Dalio warned, is more inflationary. He advised investors to closely monitor upcoming fiscal and monetary decisions.
"Because the fiscal side of government policy is now highly stimulative, due to huge existing debt outstanding and huge deficits financed with huge Treasury issuance — especially in relatively short maturities — quantitative easing would effectively monetize government debt rather than simply re-liquify the private system."
The persistent inflationary pressure and currency debasement are viewed as positive catalysts for Bitcoin (BTC), gold, and other store-of-value assets. These assets are considered hedges against macroeconomic and geopolitical risks, including a potential reset of the global monetary order.
Investor Uncertainty Surrounds the Fed's Next Move
Federal Reserve Chair Jerome Powell acknowledged in October that there were significantly differing views on how to proceed with monetary policy in December. He stated that a further reduction in the policy rate at the December meeting was not a foregone conclusion.
According to data from the Chicago Mercantile Exchange, over 69% of investors anticipate a 25 basis-point interest rate cut at the next Federal Open Market Committee (FOMC) meeting in December.
The Fed reduced interest rates by 25 basis points in October. However, this cut, which typically serves as a positive price catalyst for crypto assets, failed to significantly boost markets.
Matt Mena, a market analyst at investment company 21Shares, explained that the rate cut was "fully priced in" by investors who widely anticipated the decision before the meeting.