Ray Dalio says Trump wants to weaken the dollar while Powell tries to defend it

Ray Dalio says the fight between Donald Trump and Federal Reserve Chair Jay Powell is about the value of money, not policy details.

“When there is too much debt and borrowing,” Ray said, “the classic way of dealing with it is to push real interest rates down and devalue money.” Trump wants that. Powell doesn’t. That’s the whole fight.

Ray explains it simply. Lowering real rates and inflating away debt helps debtors and hurts creditors. “That is what Donald Trump is pushing for and what Jay Powell is defending against.”

It’s not new for presidents to want more stimulation. Every politician wants spending, markets up, happy voters. But central bankers are supposed to hold the line, not just give in to what’s popular. Normally, there’s respect for that line. Not now.

Trump pushes devaluation while Powell resists it

“This argument is more intense,” Ray says, even though debates between government and central banks are routine. Usually, central bankers “lean against the wind.” They try to find a balance between too much easing and too much tightening.

Ray lays it out: when times are calm, the president wants happy voters and the central banker wants stable money. When things get rough, the president wants even more money printing, and the central banker starts losing control. That’s what’s happening now. Trump wants a cheaper dollar. Powell is trying to stop that slide.

Then the question becomes: what should the Fed be doing? Ray says look at the data.

Market indicators? “They are clearly saying that money is now easy and that the economy is not in trouble.” He points to stocks, credit spreads, and real interest rates.

“Over the last year, the U.S. stock market was up 14%, is now at its all-time highs, and by most measures is expensive.”

That’s not normal. That’s a signal that money is cheap.

“The dollar was down 5% against a basket of other major currencies, down 27% against gold, and down 45% against Bitcoin.” Again, this isn’t stability. That’s market confidence fading.

Credit spreads? “BAA-rated corporate spreads are now trading around 1% above Treasuries.” That’s historically tight. It means everyone expects money to stay cheap.

“Real interest rates are relatively moderate and normal at a bit over 2% at the 10-year level.” That’s low. Not tight enough to defend the dollar.

Dalio sees risks rising and the dollar getting weaker

Economic indicators aren’t screaming trouble, but they aren’t perfect either. “The unemployment rate is at a relatively low 4.1% and slowly trending higher.” That means jobs are still strong, but weakening.

“Tech, especially investments and revenues in AI, is booming while sentiment and real estate are weak.” So, there’s a split; big tech’s flying, but the average American isn’t.

Ray adds that “the global economy is relatively weak.” So even if the U.S. is hanging in there, the rest of the world isn’t helping.

Looking forward? He says the path is full of risk. “There are great uncertainties and risks related to the debt and trade issues, politics, and geopolitics that all have an inflationary bias.” But at the same time, “there are great technological advances that are deflationary and will tend to increase wealth gaps.”

Ray says defending the value of money is a thankless job. “Defending monetary discipline, like defending fiscal discipline, isn’t a popular thing to do because it is de facto telling people that they need to have financial discipline.”

Nobody wants to hear that. But the stakes are high. “One man’s debts are another man’s assets.” That’s not theory. That’s your money. If the Fed caves, your savings lose value. And that’s not going to be fixed by speeches.

He asks the key question: “Will the value of money be defended?” And his answer? Not likely.

“Judging from the lessons of history and current readings, I think that it is clear that the value of money won’t be defended until the classic weak money/inflation problems become intense, and perhaps not even then.”

He brings up the 1970-1982 period, where inflation ran out of control and real rates had to be pushed sky high just to stop the bleeding. That’s the kind of pain it takes before monetary tightening is taken seriously.

“So, while maybe that tightening will happen sometime in the distant future, it’s virtually certain that it won’t come soon.” That’s Ray’s warning. Don’t expect Powell to slam the brakes unless things totally fall apart.

Until then, Ray has an advise take: “One should keep betting on weak money (i.e., the dollar going down, and low and falling real interest rates).”

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