Billionaire investor Ray Dalio — famed for predicting the 2008 financial crisis — is warning that the U.S. could be heading toward a dangerous economic crossroads, where the risks of global conflict and a downturn collide, The Daily Mail reports.

The Bridgewater Associates founder, speaking on CNBC’s “Meet the Press,” said the economy is edging toward what he called a “stagflationary period,” driven by persistent inflation and geopolitical instability — a mix he suggests could spiral into something more severe.

“I think that right now we are at a decision-making point and very close to a recession,” Dalio said. “And I'm worried about something worse than a recession if this isn't handled well.”

Dalio’s concerns come as tensions in the Middle East and broader global rivalries raise the specter of a wider conflict — something he has recently warned could escalate into World War III.

That geopolitical backdrop, combined with economic strain, forms what the head of the world’s biggest hedge fund views as a “worst of both worlds” scenario for markets and policymakers.

On inflation, recent data shows price pressures may be firming again.

Consumer prices rose 3.3% in the year through March, up from 2.4% in February, with surging energy costs responsible for nearly three-quarters of the increase. While that remains well below peak inflation levels seen in recent years, the rebound complicates the Federal Reserve’s path forward.

Dalio was blunt about what the central bank should not do next.

“Certainly, you would not cut interest rates now,” he said. “The Fed would lose its credibility, particularly now.”

His warning comes as Kevin Warsh, the presumed incoming Fed chair, faces scrutiny over whether he might ease policy under political pressure. Markets, nonetheless, expect the Fed to hold rates steady through the remainder of the year.

Despite Dalio’s stagflation warning, the broader economic picture remains mixed.

Economists expect first-quarter GDP — due Wednesday — to show growth of about 2.2%, suggesting the economy is still expanding even as inflation picks up and energy prices rise.

That divergence underscores the uncertainty at the heart of Dalio’s outlook: growth hasn’t stalled, but risks are mounting.

For Dalio, the concern isn’t just inflation or recession in isolation — it’s the convergence of economic stress and geopolitical instability.

If policymakers misstep, he suggests, the outcome could be far more severe than a typical downturn.