Last Updated: October 12, 2023
• Bridgewater Associates’ co-chief investment officer Karen Karniol-Tambour has warned of an upcoming recession that will be deeper, longer, and much more painful than what we have been accustomed to.
• This is due to the Covid pandemic which requires fiscal policymakers to get deeply involved in solving the problem.
• Monetary policy will be less important because fiscal policy will have a bigger role, and central banks may need to tighten their policies much more than they would like in order to fight inflationary pressures.
Bridgewater Executive’s Recession Warning
Karen Karniol-Tambour, Bridgewater Associates’ co-chief investment officer, warned about recessions that are very different from previous times in an interview with Bloomberg last week. Founded by billionaire Ray Dalio, Bridgewater Associates is the world’s largest hedge fund, with about $130 billion in assets under management. When asked about the next big risk she sees coming over five to 10 years, Karniol-Tambour replied: The next big risk is recessions that are deeper and longer than what we’ve been accustomed to.
Role of Fiscal Policymakers
In previous economic downturns, “central banks could just hop right in and reverse it,” she noted, adding that when central banks just eased everything, recessions were “quick and shallow,” not “deep and long.” She explained that the Covid pandemic was a turning point because for the first time fiscal policymakers got “deeply involved in solving the problem.” In addition to central banks printing money, “policymakers basically come in and direct the money to people,” she said.
Central Banks’ Role
Karniol-Tambour added that monetary policy on one hand will be less important because fiscal will be doing what it’s doing while on the other hand they’ll be in an even tougher spot because they’ll have much more entrenched inflation due to secular inflationary pressures combined with fiscal policymakers stimulating at the same time. The Bridgewater executive continued: So they’ll be forced to tighten a lot more than they would’ve otherwise wanted — or ease a lot less. Those become recessions that are much more difficult, much more painful.
Consequences of Deglobalization
Karniol-Tambour also noted that risks are exacerbated by how fast de-globalization is going which forces political forces into action instead of market forces alone. She commented: We’re in a place where to solve a lot of our most important problems you can’t only rely on market forces; you need political forces as well.”
In conclusion, according to Karen Karniol-Tambour from Bridgewater Associates’ co-chief investment officer there is an upcoming recession coming; this recession may be deeper and longer than before which requires both monetary policy from central banks as well as fiscal policy from politicians for it can successfully overcome this crisis period.