The Fed will inevitably have to buy more bonds as the US stimulus raises interest rates, says Ray Dalio

The Fed will inevitably have to buy more bonds as the US stimulus raises interest rates, says Ray Dalio

by
The Fed will inevitably have to buy more bonds as the US stimulus raises interest rates, says Ray Dalio
The ‘king of hedge funds’ Ray Dalio had a nightmare 2020

Kimberly White / Getty Images

  • According to Ray Dalio, the Federal Reserve will be forced to increase its quantitative easing program by buying more bonds as interest rates continue to rise.
  • “Dalio believes the recent $ 1.9 billion fiscal stimulus bill will encourage more Treasury bids by the US government, which will further damage the ‘supply / demand for securities’,” Dalio said.
  • At his most recent Fed meeting, Chairman Jerome Powell said the current monetary policy is appropriate.
  • Sign on here for our daily newsletter, 10 things before the opening clock.

The Federal Reserve will need to revamp its quantitative easing program and buy more bonds to curb the rise in interest rates, according to hedge fund billionaire Ray Dalio, who was first reported by Bloomberg.

In a Saturday panel at the China Development Forum, Dalio said the recently passed $ 1.9 billion COVID-19 stimulus bill would help the U.S. government raise more money by issuing more treasury bonds, which the ‘ demand / demand for the effects’ further aggravated.

The demand and supply of bonds will lead to a further rate hike, which has already wreaked havoc on certain parts of the stock market, such as the high-growth technology sector, as 10-year Treasury yields reach a pre-pandemic climbed. of 1.75% last week.

A Continued Rise in Interest Rates “Will Encourage the Federal Reserve to Buy More [bonds], “which will show a downward pressure on the dollar,” Dalio said.

In a dire scenario, Dalio explained that the world is ‘very overweight in bonds’ with a negative return, and that ‘not only is demand not enough, but that it is possible that the sale of the bonds is starting to see’ . according to Bloomberg.

According to Bank of America, there is currently $ 13.7 trillion in negative return debt. In the event that bonds are liquidated by investors, the situation is, according to Dalio, clumsy for the dollar.

Despite the concerns, Fed Chairman Jerome Powell said last week that his current monetary policy is appropriate, pushing back against the idea that the recent rate hike is a problem for the economy.

Source