Bridgewater warns that the fight against inflation in the US is far from over

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The chief investment officer of one of the world's top hedge funds warned that the United States' battle against inflation is far from over, and bets on a rapid series of interest rate cuts by the Federal Reserve next year are premature. The comments from Bob Prince, co-chief investment officer at Bridgewater Associates, pour cold water on this week's global rally in stocks and bonds, which was sparked by relief over data showing annual U.S. inflation had fallen. to a more than two-year low of 3 percent in June. Prince of Bridgewater, which manages $125 billion, said markets were wrong to assume the Fed would soon ease monetary policy. “The Fed is not going to make cuts,” he told the Financial Times. “They are not going to do what is in the price.” Pricing in futures markets indicates that investors anticipate another 0.25 percentage point increase in the rate from the Fed's current target range of 5 to 5.25 percent by the fall. Over the next 12 months, they expect the central bank to change course, cutting borrowing costs six-fold to around 3.8 percent by November 2024. Traders increased their bets on rate cuts after this week's inflation figures.

Although headline inflation fell sharply, core inflation, which excludes the volatile food and energy sectors and is closely watched by the Fed, fell more slowly to 4.8 percent. The central rate in particular remains well Job Function Email Database above the Fed's target of 2 percent. “Inflation has come down, but it is still too high, and will probably level off where it is; we are likely to be stuck at this level of inflation,” Prince said. “The big risk right now is that energy prices rebound while wages are still high,” which could fuel a rebound in inflation, he added. Prince, who oversees the Connecticut-based firm's assets along with co-CIOs Karen Karniol-Tambour and Greg Jensen, said he believes core inflation is likely to bottom out between 3.5 percent and 4 percent, which would would push the Fed to tighten monetary policy further and disappoint investors. who this week sent US stocks to their highest level in more than a year. That adjustment “could take the form of keeping rates stable in the face of expectations of a cut,” he said.



Expectations that the Fed will soon end its historic tightening cycle have helped fuel market optimism all year. The two major U.S. stock indexes, the benchmark S&P 500 and the tech-heavy Nasdaq Composite, have retreated from bear market territory this year to rise 16.5 and 33 percent, respectively. Bond yields have been more subdued, with the Bloomberg Global Aggregate Index up 2.4 percent this year, but investors have locked in some of the highest yields in decades on hopes the Fed will be close to end of its hardening. Recommended Still, Prince said it's "just not a good environment to hold assets generally in bonds or stocks," adding that cash is currently an attractive alternative. He said Bridgewater had “positioned itself for a tightening cycle,” which has meant taking a cautious stance on riskier asset classes. “Our performance is almost flat this year. We went down a little bit at the beginning of January and since then we have been gradually recovering it.” He did not discuss specific performance numbers for either of the firm's two main strategies: its Pure Alpha fund, a traditional macro fund, or its All Weather risk parity fund.