The U.S. economy is taking a worse turn and there’s a 40% chance America could experience a recession before the 2020 presidential election, according to Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates.
“Recessions are always inevitable, the only question is: ‘When?’” Dalio told CNBC’s Christine Tan on Thursday.
Fears of a looming recession in the U.S. were raised after a closely watched indicator flashed a warning signal: The yield on the 10-year Treasury note briefly broke below the 2-year rate early Wednesday. That bond market activity has been a reliable early indicator for economic recessions in the past.
That’s coming at a time when an ongoing fight between the U.S. and China challenges global trading activity and pushes back investment decisions among businesses.
Some economies are already on the threshold of a recession. Gross domestic product in Germany — Europe’s largest economy — shrank by 0.1% in the April-to-June period compared to the previous quarter. In Asia, Singapore — a major financial center — also reported economic loss in the second-quarter of this year.
An economic slowdown globally will lead central banks, including the U.S. Federal Reserve, to ease monetary policies even further, said Dalio. But cutting interest rates this late into the economic cycle may not be effective in pushing the economy, he added.
If that happens, economies around the world will likely tend to weakening their currencies to boost growth, he said. A weaker currency makes exports relatively cheaper and, in some cases, benefits financial markets.
“So, I think we are entering an environment that, over the next three years, you will see more currency wars. And whether there are visible interventions or whether their monetary policies that produce that,” said Dalio.