A billionaire economist has warned that the upcoming interest rate hikes by the Federal Reserve will cause the stock market to plunge by 20 percent.
Ray Dalio, founder of the investment firm Bridgewater Associates, agreed with predictions that the central bank would raise interest rates by another 75 percentage points, and that the year would end with interest rates at 4.5 percent.
That would be nearly double from the current range of 2.25 and 2.5 percent, which Dalio wrote would plunge stocks by a fifth as Wall Street’s three major indexes have already seen a drop of more than 9 percent in the past month.
Dalio added that the negative forecast will affect all levels of the economy, including US 401[ads1]ks, which will see a significant drop along with the stock market.
“This will bring private sector credit growth down, which will bring down private sector spending and thus the economy with it,” he wrote.
Ray Dalio (above), billionaire founder of investment firm Bridgewater Associates, warned that the projected federal rate hikes would send stocks down 20 percent
Dalio and other economists believe the central bank will increase interest rates by another 0.75 percent in a row to reach an interest rate of 4.5 percent by 2023
The gains have sent shockwaves through the stock market, with the Dow Jones Industrial Average falling 9.34 percent in the past month alone
The Federal Reserve has raised interest rates this year after keeping them near zero during the pandemic to combat historically high inflation rates.
In June and July, the central bank raised interest rates by 0.75 percent, the highest in more than two decades, and many economists predict that the Fed will make a third consecutive 0.75 percent interest rate increase in the coming weeks.
Many have predicted the increases will tip the economy into a full-blown recession next year, which the country is technically already in after reporting negative GDP growth in the first two quarters of 2022.
And with a recession, comes a stock market crash that will take a big hit on retirement accounts.
Since the last report at the end of the second fiscal quarter in June, the average balance of $401,000 was $103,800, down nearly 15 percent from the previous quarter and down 30 percent from 2021.
And things have only gotten worse on Wall Street amid the rate hikes.
In the past month, the Dow Jones Industrial Average fell by more than 3,000 points, or 9.34 percent.
The S&P 500 also fell 9.58 percent, off 410 points, in the past month, with the Nasdaq taking the biggest hit, falling 12.18 percent, or 1,644 points.
The S&P 500 is headed for its biggest annual loss since the Great Recession of 2008.
The S&P 500 fell 9.58 percent in the past month and is on track for its biggest annual loss since the Great Recession of 2008
The Nasdaq suffered the biggest losses this month, falling by 12.18 percent
Wall Street is expected to suffer repeated losses as the nation faces a looming recession. Pictured: Traders look over prices on the New York Stock Exchange on Friday
Despite open fears of a recession, Federal Reserve Governor Christopher Waller backed the central bank to make another move of 75 basis points during a speech in Austria last week.
“I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that clearly curbs demand,” Waller said.
He said the Fed would continue to take “significant steps” to rein in policy and added that rate hikes could continue into early 2023.
Fed Chairman Jerome Powell had already kept open the possibility of the increase, which is supported by many bankers in a desperate bid to control inflation.