Bridgewater CIO Warns of Deeper, Longer, and ‘Much More Painful’ Recession Than What We’re Accustomed To

The co-chief investment officer of Bridgewater Associates warned of a recession that will be “much more difficult” and “much more painful” than what we’re used to. “The dam has been broken where fiscal policy is now part of history,” said the chief executive of the world’s largest hedge fund.

Bridgewater executive’s recession warning

Karen Carniol-Tambour, co-chief investment officer at Bridgewater Associates, warned in an interview with Bloomberg last week about recessions that are very different from previous ones. Bridgewater Associates, founded by billionaire Ray Dalio, is the world’s largest hedge fund with approximately $130 billion in assets under management.

Asked about the next big risk she sees in the next 5-10 years, Karniol-Tambour replied:

The next big risk is recessions that will be deeper and longer than what we are used to.

During previous economic downturns, “central banks could just jump in and reverse it,” she noted, adding that when central banks just eased everything, recessions were “fast and shallow” rather than “deep and long.”

She explained that the Covid pandemic was a turning point because, for the first time, fiscal policymakers were “deeply involved in solving the problem.” In addition to central banks printing money, “politicians basically come in and send money to people,” she said, elaborating:

So, in my opinion, the dam has been broken and now the fiscal policy makers are part of the story… They are much more likely to come in with big fiscal expansions.

“Monetary policy, on the one hand, will be less important, because fiscal policy will do what it does,” she described. “On the other hand, they will be in an even more difficult position because they will have much more entrenched inflation due to long-term inflationary pressures and simultaneous stimulus from fiscal policymakers.” The Bridgewater executive continued:

Thus, they will be forced to tighten a lot more than they would otherwise like to, or loosen a lot less. Those become recessions that are much harder, much more painful.

“We are in a place where many of our biggest challenges cannot be relied on solely by market forces, political forces are also needed to work,” she stressed, noting that the risks “are exacerbated by how fast the pace of deglobalization will be.”

Carniol Drum opined:

The biggest wild card here, of course, is how complicated the relationship with China is getting because China is so deeply rooted in supply chains.

“There is a big difference between giving them up modestly and actually separating from China. This could be a very inflationary event that will greatly exacerbate this whole situation,” concluded the chief executive.

Last December, Blackrock, the world’s largest asset manager, similarly declared that we are approaching a recession that is “the opposite of past recessions”, noting that “the politics of recession” will take over. Jim Cramer of Mad Money said the market had already decided a recession was coming. However, US President Joe Biden said last week that he does not see the US economy sliding into recession either this year or next.

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