According to the chief investment officer of Bridgewater Associates, we are headed for a recession twice as long as normal.

The world’s largest hedge fund is sounding the alarm about the possibility of a multi-year recession.

Bridgewater Associates co-chief investment officer Greg Jensen warned this week that in times of high inflation like what the US economy is experiencing right now, recessions tend to last longer – unless the The central bank quickly cut interest rates.

And Federal Reserve Chairman Jerome Powell made it clear This week the rate cut is not on the cards.

“We think the recession will last twice as long because the Fed won’t support you for a long time and that’s a big deal,” Jensen said. told Bloomberg on Friday.

Bridgewater’s co-CIO says the “good news” is that there is less leverage in the financial system than there was before the Great Recession of 2008, which he believes will prevent a “stratification effect” in markets. market caused a deep recession. Depression.

“Instead, you have a long period of honing, maybe a few years,” he said.

Jensen predicts inflation will fall next year as a recession hits, but he argues that there will be more good and bad inflation reports that could weigh on stocks.

Not everyone on Wall Street agrees. Economists at american bank cut their inflation forecast for next year to just 2.8% on Friday, citing a “strong fall” in commodity prices. And Goldman book is expecting inflation of just 2.7% by the end of 2023.

But it might be wise to listen to Bridgewater’s co-CIO.

Jensen—who worked his way up Bridgewater for 26 years under the supervision of the fund’s billionaire founder, Ray Dalio—is one of the few Wall Street CIOs to spot a rise in inflation in 2021.

In light of the carnage that the market has experienced this year, he warned that inflation will be a persistent problem and things will go downhill. “not good for future investors.”

Recalling that forecast on Friday, Jensen argued that investors are not yet pricing in a multi-year recession and that inflation will remain above the Fed’s 2% target for some time.

“You haven’t seen the bottom of the risky assets yet,” he warned. “It will be a bear cycle for several years here.”

Impact of China’s reopening and advice for investors

The reopening of China’s economy is one of the main reasons why Jensen is worried about inflation next year.

Throughout 2022, Beijing’s strict policy no COVID policies that stand in stark contrast to the gradual easing of pandemic-era restrictions seen in the West.

But in recent weeks, officials in China have begun return some COVID restrictions after a long, strict lockdown caused Rare public demonstration nationwide.

According to Jensen, China’s reopening “will be beneficial” for some countries, but for the US and Europe, that could be a problem.

“This is not a great thing for the United States and Europe,” he said. “China is a blessing… because it has been such an inflationary force.”

With Chinese factories and consumers locked down, demand for raw materials and goods from China has declined over the past few years. That has helped keep inflation down globally.

Now, as China reopens, commodity prices are expected to riseexacerbated inflation in the West as soon as the recession hit.

That would leave a “dilemma” for central banks, Jensen said — fighting inflation even as a recession hits, or pausing or cutting interest rates and dealing with inflation. higher — even worse.

For investors, Jensen warns that this means there aren’t many solid places to “hide” at the moment.

“Overall, it’s not great out there and cash isn’t such a bad thing,” he said. “Assets don’t always go up even though we’ve had that feeling over the past decade.”

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