Billionaire investor Ray Dalio gave a bleak outlook for markets and the economy, predicting a 20% plunge in stock prices as the Federal Reserve continues to fight inflation with interest rate hikes. positive rate. “I think it looks like interest rates will have to go up a lot (towards the higher end in the 4.5 to 6% range) and a significant drop in private credit will,” Dalio said in a LinkedIn post on Tuesday. cut spending,” Dalio said in a LinkedIn post Tuesday. “This will reduce private-sector credit growth, drag private-sector spending and, therefore, the economy down with it.” The Fed is expected to adopt next week the third consecutive 0.75 percentage point rate hike this month that will bring the benchmark interest rate up to the 3%-3.25% range. According to the CME FedWatch tool, most traders expect rates to peak at 4% by the end of 2022. He added: “I would estimate that rate hikes from current levels to around 4.5 % would generate about 20% negative impact on stock price based on present value discount effect and about 10% negative impact on earnings reduction. The founder of Bridgewater, one of the world’s largest hedge funds, believes an economic downturn is inevitable but it could take some time for the negative effects of higher interest rates to filter through the economy. . “I would guess that a significant economic contraction would be required, but it will take some time because cash levels and wealth levels are relatively high right now, so they can be used to support spending.” We’re seeing that retail sales in August were better than expected as higher costs across many sectors offset the significant drop in gas prices, said Dalio. Dalio joins a group of prominent investors who have warned of a significant sell-off and a potential recession.DoubleLine Capital CEO Jeffrey Gundlach and Scott Minerd of Guggenheim Partners both believe that the S&P 500 could drop 20% by mid-October. Shares have been under pressure all year, with the S&P 500 index down 17.5%.