“The Fed has overdone it, we’re going to see a lot more deflation going forward,” Wood says. — Bloomberg
NEW YORK: Cathie Wood says that deflation is already underway in the United States across industries and will force the Federal Reserve (Fed) to kick off a big interest-rate cutting cycle.
“The Fed has overdone it, we’re going to see a lot more deflation going forward,” the head of ARK Investment Management told Bloomberg TV. “If we’re right, and they’ve gone way too far, they’ll have to cut fairly significantly.”
She added that the consumer price index inflation rate could turn negative “at some point next year”.
US inflation broadly slowed in October, which markets cheered as a strong indication that the Fed is done raising interest rates. The aforementioned data was released Tuesday.
Wood’s prediction clashes with the consensus on Wall Street. Economists expect annual inflation to tick down to 2.7% next year from 3.2% in October, according to a Bloomberg survey.
Wood said that a deflationary trend that began in commodities is now extending out to airline and auto prices.
She has long expected an era of falling prices, backed by new technologies including artificial intelligence, electric vehicles, robotics, genomic sequencing and blockchain. She had also criticised the Fed previously, saying its aggressive hikes could increase the risks of a deflationary bust.
After a blockbuster year in 2020, Wood’s flagship US$6.9bil ARK Innovation ETF tumbled roughly 23% in 2021 and 67% in 2022. It’s up 33% so far this year.
“We’ve paid our dues,” Wood said.
“We had a great year through July, then a little bit of a setback, as inflation fears picked up again.
“But I think today’s report is very important in terms of look through there and see the price declines. You’ll see a number of them.”
Despite ARK’s rally this year, the fund is still trailing the tech-heavy Nasdaq 100’s roughly 44% gain, which has been propelled by companies absent from Wood’s exchange traded funds, including Nvidia Corp, Microsoft Corp and Apple Inc. —Bloomberg
