Central banks face challenge after ‘Goldilocks’


HONG KONG • Central banks face a challenge getting things right a year or two down the road as they struggle to balance growth and inflation, said Ray Dalio, the billionaire founder of the world’s biggest hedge fund.

The US is further ahead than Europe in the economic cycle, meaning it may cut monetary stimulus and raise interest rates sooner, Dalio, whose Bridgewater Associates manages about US$160 billion (RM625.66 billion), said during an interview in Beijing with Bloomberg Television.

“We are in the Goldilocks part of the cycle, where it’s not too hot and not too cold,” he said. “We have growth and we don’t have an inflation problem. That’s the beautiful part of the cycle.”

Last year, Europe’s economy grew at the fastest pace in a decade and European Central Bank (ECB) president Mario Draghi has signalled he’s on a slow path towards boosting rates. Earlier this month, Draghi said that the ECB still can’t claim success in its struggle to restore inflation, and defended its policies from complaints that they widen inequalities.

Draghi “should be congratulated” for steering Europe through the financial crisis, Dalio said yesterday, adding that Europe has been through a “beautiful deleveraging”.

Dalio didn’t comment on how Bridgewater is positioned on Europe.

Bridgewater had amassed about US$18.45 billion in bets against Europe’s biggest stocks, Bloomberg reported on Feb 26, as peers are mostly wagering eurozone equities will rise, regulatory filings show. His bearish bets on European stocks, which included Total SA, Societe Generale SA, had dropped from US$21.65 billion earlier in February.

Still, the hedge-fund manager may have opened long positions that it has not had to disclose in regulatory filings. It also may have purchased call options or used other derivatives to make sure it benefits from positive developments in the eurozone.

At the World Economic Forum in Davos in January, Dalio warned a rise in bond yields could spark the biggest crisis for fixed-income investors in almost 40 years.

He predicted the US Federal Reserve will tighten monetary policy faster than they have signalled as the economy enters the late stage of the growth cycle.