Billionaire investor Ray Dalio says it's naive to think the Fed's rate hikes 'will make things good again'

It's naive for anyone to think the Federal Reserve's plan to raise rates will make things better.

It's not how the economic machine works according to the author.

It doesn't make things better because it takes buying power away.

The founder of the world's largest hedge fund said it would shift some of the squeezing of people via inflation to squeezing them via giving them less buying power.

—Ray Dalio (@RayDalio) June 21, 2022

The Fed raised its benchmark interest rate last week to fight inflation, which is running at its hottest since the early 1980s. The central bank has had one-time increases in the past.

Higher interest rates make borrowing more expensive and encourage people to save, which in theory helps bring down prices.

It takes a while for the effects to be felt and the risk is that the central bank raises rates to the point where the economy slows down and even goes into recession.

The Fed can't fight inflation without making the economy weak.

Stagflation is a combination of stagnant growth and high inflation that will leave the central bank with an even more complex balancing act.