By Barbara Kollmeyer
After that CPI shock earlier in the week, Wall Street is fielding a fresh batch of data on Thursday, with the headline retail sales number coming in stronger than expected. And a disastrous rail strike may be inverted.
But there’s no cheering up billionaire investor and hedge-fund manager Ray Dalio who in our call of the day asserts the Fed has no choice but to keep driving up interest rates, at a high price to stocks.
And he’s putting some fairly precise guesswork out there. “I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices,” Dalio said in a LinkedIn post dated Tuesday.
Some are forecasting the Fed could hike interest rates by 100 basis points next week, a move not seen since the likewise inflationary 80s. The central bank’s short-term rate hovers between 2.25% to 2.5%, but Nomura, for one, sees that rate headed to 4.75% by 2023.
But Dalio thinks interest rates could even reach the higher end of a 4.5%-to-6% range. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” he says.
Behind this prediction is the Bridgewater Associates founder belief that the market is severely underestimating where inflation will end up — at 2.6% over the next 10 years versus what he sees as 4.5% to 5% in the medium term, barring shocks.
As for what happens when people start losing money in the markets — the so-called “wealth effect” — he expects less spending as they and their lenders grow more cautious.
“The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects.”
<STRONG>Hear from Ray Dalio at MarketWatch’s <INTERNET LOCATION="INTERNAL" URL="https://moneyfestival.marketwatch.com/?mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline&mod=article_inline">Best New Ideas in Money Festival</INTERNET> on Sept. 21 and 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.</STRONG>
Stocks /zigman2/quotes/210599714/realtime SPX -0.19% /zigman2/quotes/210598065/realtime DJIA +0.0047% /zigman2/quotes/210598365/realtime COMP -0.51% are lower as trading gets underway, as Treasury yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.79% /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +0.48% keep climbing and the dollar /zigman2/quotes/210598269/delayed DXY +0.20% firms up.
Oil prices /zigman2/quotes/211629951/delayed CL.1 +0.86% is getting whacked, along with gold /zigman2/quotes/210034565/delayed GC00 -0.20% . China stocks /zigman2/quotes/210598127/delayed CN:SHCOMP +0.13% /zigman2/quotes/210598030/delayed HK:HSI +2.70% slipped after the country’s central bank left rates unchanged. European natural-gas prices are on the rise again. Bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.08% is trading at just over $20,000.
Shares of Union Pacific /zigman2/quotes/209717171/composite UNP +0.51% , Norfolk Southern /zigman2/quotes/200877725/composite NSC -0.41% and CSX /zigman2/quotes/208536759/composite CSX -0.80% are rallying after the White House said it has reached a tentative railway agreement with unions . No deal by Friday would mean strikes and havoc for supply chains , grain markets and even the coming holidays . Read more here .
August retail sales rose a stronger-than-expected 0.3% as Americans spent on new cars while weekly jobless claims came in lower for a fifth-straight week and import prices dropped 1%. Elsewhere, the Empire State manufacturing index perked up on the heels of a deep negative reading, but the Philly Fed factory index worsened. Industrial production softened up.
Adobe shares /zigman2/quotes/200389143/composite ADBE -1.35% are dropping after a report the software company is mulling a $20 billion deal to buy graphic design startup Figma .