Fed’s QE Strategy: Could AI Mania Lead to a Repeat of the 1999 Bubble?

Billionaire investor Ray Dalio has sounded a serious alarm regarding the Federal Reserve’s latest policy direction, cautioning that its shift away from quantitative tightening (QT) toward a version of quantitative easing (QE) could fuel a speculative bubble similar to the late 1990s dot-com surge, as reported by a

. In a post on LinkedIn, Dalio pointed to the Fed’s strategy of channeling funds from maturing mortgage-backed securities (MBS) into Treasury bills, warning that this move might blur the line between genuine technological innovation and rampant financial speculation. “Should the Fed’s balance sheet begin to grow rapidly while rates are being lowered and fiscal deficits remain high, we would interpret this as a textbook case of monetary and fiscal policy working together to monetize government debt,” he stated.

The central bank’s recent decision to end its QT initiative and keep its balance sheet steady has sparked concerns about potential market instability, according to a

. Experts have observed that the Fed’s stepped-up purchases of T-bills—projected at $15 billion each month—may shrink the available supply for private investors, possibly pushing yields down and intensifying liquidity issues in the repo market, the report notes. While the Fed’s intention is to ease short-term funding pressures, critics such as Dalio warn that these actions could foster a climate of excessive optimism, especially in sectors like artificial intelligence, where valuations are already seen by many as overheated, a point raised in a .

Dalio’s warnings reflect broader worries in the market about the formation of asset bubbles. The artificial intelligence industry, for example, is increasingly likened to the tech mania of 1999, with prominent figures such as Alibaba’s Joe Tsai and C3.ai’s Tom Siebel voicing concerns about excessive valuations. At the same time, the Fed’s supportive policies are unfolding against a backdrop of significant fiscal deficits and strong growth in private credit, all of which could heighten inflation risks if not addressed. “This appears to be a bold and risky wager on economic expansion—particularly in AI—funded by extremely loose fiscal, monetary, and regulatory measures,” Dalio warned.

The next few weeks will put these perspectives to the test. Investors are monitoring November’s inflation numbers and manufacturing PMI data for hints about the Fed’s future policy decisions, as indicated by the

. Upcoming earnings reports from companies like Coca-Cola and Cisco Systems could also shed light on the state of the economy. For now, Dalio’s caution highlights a rising sense of unease that the Fed’s efforts to balance economic growth with inflation control could ultimately lead to asset prices detaching from underlying fundamentals, reminiscent of the turbulence seen in previous financial bubbles.