Inflation in the United States unexpectedly hit a record high in May, rising 8.6% year-on-year, the highest since 1981, which made the market worry that a recession is coming.
Central banks around the world will have to start cutting interest rates again within two years in order to rebuild economies after a bout of stagnant inflation (low growth, high prices) . He said that stagnant inflation is caused by structural inflation, and the continuous expenditure of the government and enterprises is exchanged for a decreasing rate of return, resulting in high inflation.
Dalio noted that stagnant inflation will eventually hurt the U.S. economy so much that the central bank will have to cut interest rates in 2024, a presidential election year. Spending will be much higher than income for a long time, he said, and Bridgewater is bullish on inflation-fighting assets.
The World Bank on Tuesday sharply revised down its forecast for global economic growth in 2022 to 2.9 percent from 4.1 percent in January, down from 5.7 percent in 2021, CNBC reported. The World Bank said it expects global growth to remain at a similar level through 2023-2024, with inflation above target in most economies.
World Bank President David Malpass said the war in Ukraine, China’s coronavirus lockdown, supply chain disruptions and the risk of stagnant inflation are hitting the economy and for many countries a recession will be unavoidable.
Bloomberg reported on Wednesday that futures quotes showed expectations for a rate cut in the U.S. within two years, as did other advanced economies, including the U.K.
St. Louis Federal Reserve Bank President James Bullard said in a speech on June 1 that the Federal Reserve (FED) should raise the federal funds rate to 3.5% by the end of this year, and once inflation falls back to the target zone, interest rates will be reduced. It could be lowered in 2023 or 2024.
Reserve Bank of Australia (RBA) Governor Philip Lowe unexpectedly raised the cash rate target by 50 basis points to 85 basis points on Tuesday. Lowe expects Australian inflation to rise further, falling back to the 2-3 per cent range next year.
John C. Williams, President of the Federal Reserve Bank of New York and Vice Chairman of the Federal Open Market Committee (FOMC), said in October 2020 that the FOMC has learned three important lessons since 2012, one of which is the long-term neutral rate (r-star) slip.
Olivier Blanchard, the former chief economist of the International Monetary Fund (IMF), pointed out in an exclusive interview with Martin Wolf, a well-known columnist in the British Financial Times, that the factors that have led to the continuous decline of real interest rates since the mid-1980s may only be reversed in investment. .