Billionaire investor Ray Dalio issued a dismal outlook for the markets and the economy, predicting a 20% plunge in stock prices, as the Federal Reserve continues to combat inflation with aggressive rate hikes. "I think it looks like interest rates will have to rise a lot (toward the higher end of the 4.5 to 6 percent range) and a significant fall in private credit that will curtail spending," Dalio said in a LinkedIn post dated Tuesday. "This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it." The Fed is expected to approve next week a third consecutive 0.75 percentage point interest rate increase this month that would take benchmark rates up to a range of 3%-3.25%. Most traders expect interest rates to top 4% by the end of 2022, according to CME FedWatch tool. "I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices based on the present value discount effect and about a 10 percent negative impact from declining incomes," he added. The founder of Bridgewater, one of the world's largest hedge funds, believes an economic slowdown is inevitable but it could take some time for the negative effects of higher interest rates to filter through the economy. "My guesstimate that a significant economic contraction will be required, but it will take a while to happen because cash levels and wealth levels are now relatively high, so they can be used to support spending until they are drawn down. We are now seeing that happen," Dalio said. Retail sales numbers for August came in better than expected as higher costs across a multitude of sectors offset a considerable drop in gas prices. Dalio joins a band of high-profile investors who have been warning about a significant sell-off and a potential recession. DoubleLine Capital CEO Jeffrey Gundlach and Guggenheim Partners' Scott Minerd both believe the S & P 500 could plunge by 20% by mid-October . Stocks have been under pressure all year, with the S & P 500 down 17.5%.