Ray Dalio says cutting budget deficit is crucial to stabilize the bond market

Published On Jan 21, 2025, 9:50 AM

Ray Dalio, founder of Bridgewater Associates, emphasized the importance of reducing the U.S. budget deficit to stabilize the bond market and lower interest rates. He noted the current deficit is at 7.5% of the GDP and suggested it should decrease to about 3% to improve the supply-demand balance for bonds. Dalio warned that rising financing costs, increased spending, and declining tax revenues have worsened the deficit, leading to significant national debt. He advocated for a cooperative political approach to achieve the necessary reductions through higher taxes or lower spending.

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If the U.S. budget deficit is reduced, it could lead to a more stable bond market and lower interest rates, which typically benefits financial institutions and certain sectors reliant on borrowing. Investors might consider financial stocks as they could profit from a healthier lending environment.

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