This post was originally published on this site
In an open letter to the Federal Reserve on Monday, ARK’s Cathie Wood said the central bank is making a policy error that will cause deflation.
“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,” wrote Wood.
She stated that the Fed is focused on employment and headline inflation, which Wood explained are both lagging indicators and the Fed should instead focus on commodity prices.
“Most commodity prices have peaked and, except for food and energy, are falling on a year-over-year basis, as shown below. Without question, food and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine,” argued Wood.
Wood’s firm manages approximately $14.4 billion in client money across various active ETFs.
The ARK founder added that downstream inventory accumulation “seems to be overwhelming manufacturers and retailers.” Various retailers have been aiming to combat increasing inventories, with some stating that retail firms are facing an inventory crisis.
“After grappling with supply chain constraints for more than a year, even world class companies seem to have overruled their automated enterprise resource planning (ERP) systems and over-ordered merchandise,” Wood continued, pointing to single-digit sales growth, and inventories at Walmart (NYSE:WMT) and Target (NYSE:TGT), increasing 25.5% and 36.1%, respectively, during the most recent quarter.
On potential deflation, Wood commented: “Could it be that the unprecedented 13-fold increase in interest rates during the last six months––likely 16-fold come November 2––has shocked not just the US but the world and raised the risks of a deflationary bust?”
