Crypto investment firm ARK Invest founder Cathie Wood writes an open letter to the Federal Reserve claiming the agency is making a policy error that will cause deflation.
She contends that Chair Jerome Powell and the Fed should use “leading indicators” like commodities, used cars, and housing prices that give a better perspective instead of “lagging indicators” like employment and headline inflation to support tighter monetary policy.
Of course, higher interest rates have negatively impacted Ark Invest’s funds in 2022. Wood claimed that the only things that worried her were deflation and the possibility of a global “bust” brought on by the Fed’s actions.
Also Read: Cathie Wood’s ARK Invest Dumps Coinbase Shares at Massive Loss
In the letter to the Fed, Wood and her team of analysts at Ark Invest compiled some data that they claim demonstrates why they think inflation is already starting to decline.
First, they described the recent decline in the pricing of vital commodities, demonstrating that copper prices, a crucial gauge of economic health, are now down 31% from their peak and that lumber and oil prices have fallen by 74% and 25%, respectively.
Second, they pointed out that, in July, home prices had their first monthly decline since May 2020, falling 0.6%, according to the Federal Housing Finance Agency. Home prices had been rising throughout the epidemic and aggravated inflation.
Major stores like Target, Nike, and Walmart have seen a sharp increase in inventories this year as well, Wood noted, which may result in discounts for customers.
Additionally, the used car index from Manheim indicates that wholesale used car prices decreased by 3% in September after rising sharply throughout the year.
According to Wood, all of this evidence indicates that inflation has peaked and is starting to return to the Fed’s 2% goal rate, so further increases in interest rates aren’t necessary and risk triggering a global “deflationary bust”.
Although CEOs like Cathie Wood are asking the Fed to stop raising rates or even switch to cutting rates, Fed officials have made it apparent in recent weeks that they aren’t intending to change their policy anytime soon.
Atlanta Federal Reserve president Raphael Bostic noted “You no doubt are aware of considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall. I would say: not so fast.”
Cathie Wood stated, “In the face of conflicting data, the unanimity of the Fed’s last decision to increase the Fed funds rate by 75 basis points was surprising.”
