Concerns over Consequences of Fed Moves

The world’s biggest hedge fund is scared that a U.S. interest rate hike later this year will send markets into a 1937-style tailspin, but experts told CNBC that they aren’t too concerned.

In a note to clients that was widely-discussed on Tuesday, Ray Dalio, founder of the $165 billion hedge fund Bridgewater Associates, raised concerns that a Federal Reserve rate hike in June or September could create a market rout similar to the one seen in 1937.

Bridgewater highlighted several similarities between current financial market conditions and 1937: The economy is rebounding, interest rates are at zero and asset prices are enjoying a strong rally. In 1937, the U.S. central bank tightened monetary policy under the belief that the downturn arising from the 1929 Great Depression was over, but its actions tipped the country back into a recession and saw the Dow Jones Industrial Average lost half its value in a year.

CNBC

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