Ray Dalio Says Watch out for Rates Reaching This Level, Because Market Might Take a 20% Hit

After a hotter-than-expected inflation print rattled financial markets around the world this week, Ray Dalio issued a gloomy forecast for markets and the economy.

"It looks like interest rates will have to rise a lot (toward the higher end of the 4.5% to 6% range)," the billionaire founder of Bridgewater Associates LP wrote in a LinkedIn article dated Tuesday. "This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it."

A deepening inversion of key curve measures, viewed by many as a potential harbinger of recession, has contributed to investors' more pessimistic view of economic outlook.

"I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices," Dalio said in a LinkedIn post dated Tuesday, based on the present value discount effect. On top of that he estimates a 10% negative impact from declining incomes.