The Fed hiked rates in December, the first such move in more than nine years.
At the time, central bankers telegraphed four more possible rate increases in 2016. But with the horrible start for the markets in the new year, many investors are questioning the wisdom of such an aggressive path higher.
"This will be a negative for the economy, this market movement. The Fed should remain flexible. It shouldn't be so wedded to a path," Dalio said. "We're going to have a lower level of growth in six months from now ... about 1.5 percent."
"The risks are asymmetric on the downside, because asset prices are comparatively high at the same time there's not an ability to ease," he added. "That asymmetric risk exists all around the world. So every country in the world needs an easier monetary policy."
"It's going to be much more difficult ... next time," he said, because the U.S. needs movement on fiscal policy from lawmakers in addition to monetary policy from the central bank.
Dalio's Bridgewater Associates has $155 billion in assets under management and counts the World Bank among its investors. He's advised various U.S. treasury chiefs including, Tim Geithner and Larry Summers.
The firm's flagship Pure Alpha fund was up 4.7 percent, and its Pure Alpha Major Markets fund was up 10.6 percent in 2015, even after fees were taken out. Since inception in 1991, Pure Alpha has generated an annualized net return of 13 percent.
The S&P 500 ended last year down 0.73 percent, after three-straight years of double-digit gains.
However, Bridgewater's All Weather portfolio, a long-only fund designed to hold a well-diversified asset mix, ended 2015 down 7 percent.
"All Weather ... is a portfolio in which the assets are supposed to balance each other," Dalio said. "[But] the problem last year is that almost all asset classes in the world went down in value. That can't go on too long without producing a depression."
Since inception in 1996, All Weather has generated an annualized net return of 7.7 percent.
In a recent private note to Bridgewater clients obtained by CNBC, Dalio wrote, "[China] went from being underappreciated and cheap to being loved and expensive, and is going back again, fueled by leveraging and deleveraging."
Dalio goes on to say that policymakers need to:
- Manage debts: i.e., bring debt growth down toward income growth and restructure a lot of debt.
- Restructure the economy: i.e., help new businesses and industries replace old businesses and industries.
- Develop all forms of capital markets, including making credit, equity and currency markets more efficient.
- Manage the pressures on the balance of payments and currency.
"I think the China situation with the currency is very important," Dalio said Wednesday. "If there's significant currency weakness, that will mean more imported deflation [to the U.S.]. And it'll make things more difficult."
He said the dollar will be strong temporarily because of a short squeeze. "Emerging countries owe dollars. So they have to buy dollars," he said. "Once that squeeze is over, it undermines the dollar longer term."