Ray Dalio says watch out for rates reaching this level, because Wall Street stocks will take a 20% hit

After that CPI shock earlier in the week, Wall Street is fielding a fresh batch of data on Thursday, with the headline retail sales number coming in stronger than expected. And a disastrous rail strike may be inverted.

But there’s no cheering up billionaire investor and hedge-fund manager Ray Dalio who in our call of the day asserts the Fed has no choice but to keep driving up interest rates, at a high price to stocks.

And he’s putting some fairly precise guesswork out there. “I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices,” Dalio said in a LinkedIn post dated Tuesday.

But Dalio thinks interest rates could even reach the higher end of a 4.5%-to-6% range. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” he says.

Behind this prediction is the Bridgewater Associates founder belief that the market is severely underestimating where inflation will end up — at 2.6% over the next 10 years versus what he sees as 4.5% to 5% in the medium term, barring shocks.