Hedge fund billionaire Ray Dalio has forecast the US economy to likely fall into recession prior to the next presidential election in 2020.
Dalio´s views are widely followed, especially as he correctly predicted the 2008 financial crisis.
In 2007, he warned that major banks were at risk of going under.
Speaking at Harvard Kennedy School´s Institute of Politics, Dalio put the odds of a recession before Trump stands for re-election in 2020 as high as 70%.
Boom and bust
Dalio, who is chairman of hedge fund firm Bridgewater Associates, believes the $1.5tn in US tax cuts unveiled by Trump in December could lead to higher US interest rates than otherwise would have been the case as the Federal Reserve moves to head off rising US inflation.
Dalio therefore expects we could see the US economy follow a classic boom and bust cycle, with higher interest rates eventually leading to a contraction.
He described the economy as currently being in a “pre-bubble stage.”
“The probability of a recession prior to the next presidential election would be relatively high, 70% or something like that,” said Dalio.
Global stocks sold off sharply earlier this month amid concerns over accelerating US inflation and the corresponding policy response from the Federal Reserve.
Dalio is far from being alone in his caution on the economic outlook. As of May this year, the current expansion will be the second longest in US history.
At the same time, many economists believe the current growth phase will last at least until some point in 2019.
Data released on Thursday showed the number of Americans filing for unemployment benefits had fallen to a near 45-year low last week.
The figures indicate continuing robust momentum for the US economy, with strong jobs growth in February.