Ray Dalio is back with a fresh warning, and it's about the Fed's new policy

Ray Dalio Issues Warning on Fed’s New Policy

Legendary hedge-fund manager Ray Dalio warns that the Federal Reserve's upcoming policy shift could fuel a bubble and lead to higher inflation. Dalio, founder of Bridgewater Associates, provocatively claimed, "Did you see the Fed's announcement that it will stop QT and begin QE," referring to the Fed’s move from quantitative tightening to a possible increase in asset purchases.

The Fed's quantitative tightening (QT) program, aimed at reducing its nearly $7 trillion balance sheet, is expected to end in December. Chair Jerome Powell mentioned during an October press conference with CNBC that the Fed might start expanding its asset holdings next year.

"At a certain point, you'll want to start reserves to start gradually growing to keep up with the size of the banking system and the size of the economy," Powell explained.

Dallas Fed President Lorie Logan, known for her expertise in money-market mechanics, echoed a similar viewpoint:

"If the recent rise in repo rates turns out not to be temporary, the Fed in my view would need to begin buying assets to keep reserves from falling further and maintain an ample supply of reserves."

This raises the question: if the Fed buys bonds to control lending rates to commercial banks, does that count as quantitative easing (QE)? While the Fed and other central banks deny this label, the distinction might be hard to discern.

Summary

Ray Dalio cautions that the Fed’s planned shift from balance sheet shrinking to potential asset purchases could unnecessarily inflate risks and inflation, blurring lines between tightening and easing policies.

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Morningstar Morningstar — 2025-11-06

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