Ark Invest CEO Cathie Wood on Tuesday reiterated that investors are downplaying the risk of deflation, while also warning that the Federal Reserve is making a policy mistake with raising interest rates. strong. “We’re seeing a lot of deflation going on,” Wood said in an investor webcast. “We don’t believe that Chairman Powell’s mandate and this Fed’s mandate is anything like it was in the late ’70s and early ’80s.” The innovation investor referenced Fed Chairman Jerome Powell’s recent speech in which he vowed to raise interest rates to fight inflation “until the job is done.” Powell used the phrase “keep there” twice in his speeches, which was the title of Paul Volcker’s 2018 memoir. Volcker, the Fed chief under Presidents Jimmy Carter and Ronald Reagan, helped tame inflation in the 1980s with 20% interest rates that also weakened the economy. “During that period, we worked for more than 15 years to combat the frenzy of inflation,” Wood said. “There is no end to inflation.” The period leading up to inflation skyrocketed in the 1970s, Wood said, coincided with the end of the Vietnam War, the abandonment of the gold standard, and the quadrupling of oil prices. This time, however, the situation is less severe, marked by temporary supply chain disruptions caused by the pandemic, she said. Wood added: “This is like a 15-month problem. Her comments come amid a massive sell-off on Wall Street after the key inflation report in August was hotter than expected. The August Consumer Price Index report showed inflation up 0.1% month-on-month, even as gasoline prices fell. Economists surveyed by Dow Jones had expected a 0.1% drop. Widely watched investors still believe that price pressures are poised to ease, leading to a rise in rents. She noted that the core deflation tool PCE, one of the Fed’s favorite inflation gauges, peaked at 5.3% in February. “If we are right and the Fed increases by 75 basis points on September 21, the dollar will continue to break to new highs and prices of all these commodities will continue to fall even more,” Wood said. speak. Investors pointed to several leading indicators that are signaling that inflation may have peaked. She noted that gold, traditionally an inflation hedge, hit a high more than two years ago. Other commodities including lumber, copper, iron ore and oil are all down double digits from their highs. She added that notable investors Elon Musk and Jeffrey Gundlach seem to agree with her call for deflation. The Tesla CEO tweeted on Friday, “A massive Fed rate hike risks deflation.”
