Recession 2019 Has 25% Chance Of Happening, Billionaire Suggests Fed Cut 25 Basis Points

Recession risk runs fairly high in the U.S. economy this year as well as in 2020, according to Ray Dalio, the billionaire founder of Bridgewater, one of the largest hedge funds in the world.

In percentage terms, Dalio puts the recession risk at 25 percent and urged the Fed Reserve to be judicious and gradual in its rate cuts.

In an interview on The David Rubenstein Show, the billionaire fund owner advised the Fed to cut interest rates slowly, maybe 25 basis points, without a time frame.

Dalio is the co-chief investment officer of Bridgewater. The hedge fund manages $160 billion and is based in Westport, Connecticut.

Fed’s July cut and rising expectations in September

The Fed Reserve cut interest rates on July 31 for the first time in a decade. There is speculation that Fed will slash lending rates by another 25 percentage point at its Sept. 17-18 policy meeting.

In the words of Chairman Jerome Powell, the July cut was “mid-cycle adjustment” and not the starting point for a series of cuts.

The billionaire is also skeptical of the efficacy of central bankers in addressing recessionary factors.

According to Dalio, it is time The Federal Reserve, European Central Bank and Bank of Japan recognized the fact that when the next downturn comes they will not have the power to reverse it in “the same way that existed before.”

Dalio sees a confluence of many factors in weighing the possibility of a recession.

They include the effectiveness of central banks, the gap between the rich and poor, the U.S. election and the influence of China.

The hedge fund boss has been critical of the interest rate environment for months and recently said the global economy is in the terminal stages of a long-term debt cycle.

Bridgewater’s main fund, Pure Alpha shed 6 percent this year after hurt by global interest rates, Bloomberg had reported.

Fed rate cut will not fully please markets

Meanwhile, reports said even if the Federal Reserve cuts interest rates by a quarter-point in September it will not satisfy the markets, bond markets and the wishes of President Donald Trump.

According to Fed news, a 25 basis point will bring down the lending rate to a range between 1.75 percent and 2 percent. That would still keep Fed rate 30 basis points above the rate at which 10-year Treasury note traded on Thursday.

“If the Fed continues to go gradually, it will never get ahead of the markets,” said Joseph LaVorgna, chief Americas economist at Natixis.

The analyst flayed the Fed as not strategic in its thinking and its focus should be more on “what’s happening globally.”

Former Chairman Alan Greenspan has speculated that the U.S. might go into negative rates at some point.

Bill Dudley, an economics scholar at Princeton University, writing on Bloomberg urged the Fed not to give in to pressure of Trump news related to rate cuts that indict the Fed for the downside risks caused by Trump’s trade war with China.

Dudley notes that the Fed’s accommodation will only embolden Trump to escalate the trade war.