Is this the end of a historic economic cycle? Why did Dalio sound the alarm on the Federal Reserve's policy

When economic data is impressive, employment is booming, and stock markets hit new highs, the central bank is easing policy. This seemingly contradictory phenomenon has caught the attention of legendary investors.

What Is the Strange Policy Mix Brewing

Ray Dalio, founder of Bridgewater Associates, recently issued a sharp comment. He pointed out that the Federal Reserve’s current actions reflect a fundamental economic anomaly: implementing stimulus policies at the strongest moments of the U.S. economy.

The usual logic is the opposite. The Fed typically intervenes during economic downturns—examples include the Great Depression of the 1930s or the 2008 financial crisis. But now, things are different. Unemployment in the U.S. is at historic lows, economic growth remains steady, and stock indices are frequently reaching new highs.

However, after the Fed cut interest rates by 25 basis points in October, further actions may be taken in December. This combination signals a warning to Dalio: a 75-year economic cycle is reaching its end, and excessive debt is the main actor in this drama.

The Double Risks of Deficit Expansion and Currency Dilution

What does simultaneous expansion of government spending and central bank liquidity mean? Dalio calls it “more inflationary allocation.”

The U.S. has a large fiscal deficit, with a continuous issuance of short-term government bonds. When the Fed increases the money supply, risks rise: newly created money may flow directly to government spending rather than real economic production. This is known as debt monetization—the use of printing presses to finance deficits.

Political pressures are also intensifying. Donald Trump’s recent public criticism of Fed Chair Powell, even hinting at replacing him, has cast a shadow over the independence of the central bank.

A New Era for Safe-Haven Assets?

Against this macro backdrop, two asset classes shine particularly brightly: Bitcoin and gold.

The logic is clear: increase in money supply → debt monetization → fiat currency depreciation. Faced with this situation, investors naturally turn to scarce and non-manipulable assets.

Bitcoin’s appeal lies in its supply cap—permanently fixed at 21 million coins. This programmed scarcity serves as a natural hedge against central bank liquidity expansion. More and more analysts see Bitcoin as an insurance tool against macro and geopolitical risks.

However, the crypto market has shown caution. When rates were cut in October, the market did not rise as expected. Analysts point out that this decision was already priced in, with traders having pre-absorbed the information.

Regarding the December trend, data from the Chicago Mercantile Exchange shows 69% of participants expect another 25 basis point rate cut. But Powell had already cooled expectations in October, leaving the subsequent decision uncertain.

The Final Wake-Up Call

Dalio’s warning captures the core contradiction of this moment: injecting stimulus into an already strong economy is fueling a new bubble and paving the way for inflation. For investors, every central bank move from now on could mark a turning point in this historic cycle.