If investors have got spooked by the correction seen across global markets, the worst is yet to come. With the Fed announcing the winding down of its quantitative easing program and the possibility of a hike in interest rate, the spike in the 10-year treasury yields have sent indices tumbling down from their record highs across the US, Europe and Asia.

But Ray Dalio, founder and co-chief investment officer of the world’s biggest hedge fund, Bridgewater Associates with over $150 billion in assets, believes conditions are likely to get worse in all three dimensions - economically, internal conflicts and external conflicts – over 2023 and 2024.

Dalio points out that in the current year, the U.S. will be entering into the beginning of the tightening phase of the cycle. “Traditionally, in such transition years, interest rate hikes do not knock over the market or the economy in a big way. The transition years are periods that almost nobody remembers. For instance, if you think of 2008, the financial crisis comes to mind, but you don’t know what happened during 2010-11. So, that’s how transitionary years are within a cycle,” Dalio tells Fortune India in an exclusive interview.

In 2023, Dalio believes the U.S. economy will be farther into the expansion phase of the cycle, when inflation and tighter money become more acute, that will mark the end of the cycle. The U.S. presidential elections in 2024 will be a big event as Dalio believes that neither party — the Democrats or the Republicans — will accept losing.

“In which case, the rule of law and abiding by the constitution will subside and a raw power struggle will begin,” mentions Dalio.

Compounding the internal turmoil, would be the external geopolitical environment. “For instance, the frictions related to Taiwan and China, and Ukraine and Russia, could heat up,” feels Dalio.

While the current carnage being witnessed on the Street is more an outcome of the Fed actions, investors would react to changing geopolitical changes closer to the event. “They (investors) won't react to the types of changes that I'm talking about until they start seeing them happen and seeing them affect the cash flow of their investments,” points out Dalio.

Though there is speculation around the quantum of hikes needed to curtail the four-decade high inflation in the U.S., Dalio believes the interest rate changes needed to bring down inflation and growth to desirable levels won’t occur because they are too negatively impactful.

“Central bankers will continue to grapple with the inflation and growth trade-off in a way that will most likely produce a stagflation,” feels Dalio.

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