Ray Dalio Says Government Keeps Borrowing Amid Rate Hikes as Lower-Income Households Get Squeezed First, While Stock Prices Could Suffer: ‘Everybody Else Gets Squeezed Out’

Billionaire investor Ray Dalio said that when rates are raised, the government “just keeps borrowing, and everybody else gets squeezed out.”

Dalio posed the question “What is the impact of raising rates?” in a post on X on Monday and answered it in a video attached to the post. He wrote, “For households and corporations, it really depends on whether you have the money.”

Who Gets Squeezed First

“If you have plenty of money, you’re the last to be squeezed out,” Dalio wrote. “But the lower 60% of the population and companies without the financial capability to borrow will feel it first.”

Dalio said those in the lower 60% of the population are the first to be squeezed out, “particularly things like houses.”

Rates and Stock Prices

Dalio said, “As credit becomes tighter, businesses see less activity and profits, which directly impacts stock prices.”

In the video, Dalio said raising rates will “have an effect on stock prices for a few reasons,” including that “stocks compete with other assets.” He said there will be “a question about putting money into other assets, bonds and so on.”

Stocks, Bonds and Borrowers

Fund managers have also been asked about shifting between stocks and bonds.

Bank of America strategists led by chief investment strategist Michael Hartnett surveyed 185 fund managers overseeing $512 billion on the 10-year Treasury yield at which they would consider shifting from stocks to bonds. The most common answer, from 37% of respondents, was 6%. About 19% of respondents said yields are already high enough to sell stocks for bonds.

Dalio has also spoken about who lends to the government.

In a previous interview, Dalio said foreign capital supplies almost a third of the money the U.S. borrows, and that China does not want to keep accumulating U.S. debt while Japan wants much of its money back. Foreign lenders are “starting to get squeezed,” he said, and that leaves more borrowing chasing a shrinking pool of savings, pushing rates up.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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