The US is on the cusp of stagflation, and the markets are not yet aware: Bridgewater
- Bridgewater said the US economy is on the cusp of stagflation and investors are still looking to fully pursue it.
- The hedge fund’s chief information officer, Bob Prince, told Bloomberg TV that markets are very optimistic about lower inflation.
- Concerns about the economy are growing on Wall Street, as analysts increasingly talk about a recession.
The US economy is on the cusp of stagflation and markets are yet to fully respond, according to the chief investment officer of Bridgewater Associates, the world’s largest hedge fund.
Bob Prince told Bloomberg TV on Tuesday that investors are very optimistic about the trajectory of inflation and rates.
When asked if he thought stagflation would hit the United States, Prince said, “We’re on the cusp of that, yes.”
Stagflation is a frightening combination of high inflation and low growth. Inflation is at a 40-year high in the US, and while growth continues, many economists expect it to slow as the Federal Reserve raises interest rates to cool prices.
Prince said that the United States is currently experiencing “cash inflation.” He said massive stimulus from the government and the Federal Reserve during the pandemic had boosted spending, but he said that now had raised prices rather than increased real growth in the economy.
He said the bond market showed that investors were very optimistic about inflation, with long-term bonds pricing as if inflation would cool sharply.
“Markets underestimate the inflation profile. The sustainability and self-reinforcement of inflation are not ruled out. The degree of tightening over time is not ruled out,” he told Bloomberg at the World Economic Forum in Davos, Switzerland.
On the positive side, Prince said that US banks are now much safer than they have been in the past.
“The banking system is not supported,” he said, adding that the stimulus helped banks become less risky as they invested money in safe assets such as US Treasuries.
Although predictions of a
Louder, many on Wall Street think fears of a dangerous slowdown are overblown.
JPMorgan President Jamie Dimon said the US economy remains strong and consumers have plenty of savings that would help them in the event of a recession.
Read more: Buy these 11 undervalued stocks that smashed earnings expectations even as fears of a market crash persist, according to Morningstar.