Former hedge fund manager Ray Dalio has warned that the US Federal Reserve’s current easing of monetary policy is creating an economic bubble, particularly in hard assets such as bitcoin and gold.
Dalio argues that these measures, while historically used during downturns, are now being implemented amid economic growth and low unemployment, which he says is typical of late-stage economies burdened by excessive debt.
Fed’s unconventional easing
Typically, the Federal Reserve reduces interest rates when the economy is slowing, unemployment is high, and asset prices are falling.
However, Dalio notes that the Fed is now easing despite robust asset markets. He describes this as a ‘dangerous’ and inflationary combination. Dalio wrote:
“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.”
Implications for bitcoin and hard assets
Dalio suggests that ongoing inflation and currency debasement are likely to benefit hard assets like bitcoin and gold, which serve as hedges against macroeconomic and geopolitical risks.
He also alludes to a potential reset of the global monetary order, signaling further uncertainty for traditional markets.
Investor uncertainty persists
Markets remain divided on the Federal Reserve’s next steps.
According to CME Group data, over 69% of investors anticipate a 25 basis-point rate cut at the next Federal Open Market Committee meeting in December.
The October rate cut failed to boost bitcoin markets, as it was already widely anticipated and ‘fully priced in’ by investors.
Late-stage economic signals
Dalio characterizes current fiscal and monetary policies as symptoms of a late-stage economic cycle, marked by high debt and aggressive stimulus.
This environment, he argues, increases the risk of bubbles and could have significant consequences for asset valuations and financial stability.
