Bridgewater Sees Market Turmoil on ‘Aggressive’ Fed Tightening

Investors may be underestimating the need for “aggressive” monetary tightening from the Federal Reserve and other central banks to combat inflation, resulting in “significant risks” for markets, according to Bridgewater Associates.

Following hawkish comments from the Fed Chair Jerome Powell last week, investors have brought forward expectations of tightening, pricing in five quarter-point rate hikes this year. Further out, however, they’re predicting fewer rate increases, anticipating the Fed will end the cycle with the policy rate at about 1.65% and long-term inflation expectations anchored around 2%. Consumer prices surged 7% in December from a year earlier, the fastest pace since 1982.