Manager of world’s largest hedge fund says more jobs must be cut to tame inflation

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Bob Prince, who helps manage the world’s largest hedge fund, said we’re seeing the return of the boom-bust cycle and more people need to lose their jobs before inflation will be brought under control.

“It is hard to say whether we are done with the tightening or we will have another tightening,” Prince, the co-chief investment officer of Bridgewater Associates, said in an interview with Bloomberg TV at the World Economic Forum in Davos, Switzerland. “What we can say is that the next shoe to drop has to be a decline in the economy, in particular, a contraction in the labor markets.”

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Prince said traders were still acting like the Federal Reserve will repeat its response to previous downturns and therefore buoy stock prices. “What is discounted is a return to the last decade,” he said. “What is actually happening is more like the 1970s. More like the boom-bust cycle.”

His predictions run counter to what some CEOs including Citigroup Inc.’s Jane Fraser have been saying elsewhere at Davos about the prospects of a mild recession.

The boom-bust cycle refers to economic expansion and contraction that repeats itself. Central bank intervention since the financial crisis and monetary easing for much of the last decade had disrupted that cycle and fueled a market boom. Speaking at Davos in 2020, Prince himself had said that boom-bust economic cycle was over.

“We are experiencing the after effects of the monetary stimulation of the US and European economies. Now the money is spinning around the system, exchanging hands from one to the next,” Prince said. “Spending has not fallen off hardly at all, not nearly enough to bring down inflation.”

The Westport, Connecticut-based investment firm’s Pure Alpha II fund ended last year up 9.5 percent, after losing much of its annual gains in October and November as markets turned.

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