(Sept 18): Bridgewater Associates founder Ray Dalio said the overall picture of the US economy probably warrants a smaller interest-rate cut by the Federal Reserve (Fed) this week.
“The Fed has to keep interest rates high enough to satisfy the creditors that they are going to get a real return without having them so high that the debtors have a problem,” Dalio told Bloomberg Television correspondent Haslinda Amin in an interview in Singapore on Wednesday.
“Whether it’s 25 or 50 basis points, 25 basis points would be the right thing to do if you look at the whole picture,” Dalio said on the sidelines of the Milken Institute Asia Summit 2024. “If you look at the mortgage situation, which is worse and that affects more people, then it’s probably 50 basis points.”
The Fed is widely expected to lower interest rates later Wednesday after holding borrowing costs at a two-decade high for more than a year. Investors and forecasters are split over whether it will cut by a quarter percentage point or a half point, as officials seek to bring the economy to a soft landing.
But Dalio said that what the Fed does this week “doesn’t make a difference” over the longer term. “I think it’s such a silly bet — 25 or 50,” he said. Policymakers will ultimately need to keep real interest rates low to enable the servicing of mounting debts, he added.
Dalio isn’t the only financial luminary to express ambivalence about Fed policy. JPMorgan Chase & Co chief executive officer Jamie Dimon said whether the central bank cuts rates by 25 or 50 basis points, the move is “not going to be earth-shattering.”
“They need to do it,” Dimon said at a conference on Tuesday. But “it’s a minor thing when the Fed’s raising rates and lowering rates because underneath that there’s a real economy.”
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