Criticism of the Fed
The head of Ark Investment sent an open letter to the Fed criticizing their actions.
What bothers her most is that the Fed keeps raising its interest rates. There has already been a 3% increase in interest rates since March and we can expect more increases at future meetings.
According to Wood, the Fed is “making a policy mistake that will cause deflation.”
Illustration ARK Investment Management LLC logo
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However, she admits that the problem is the ever-rising energy and food prices.
“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.”
But we can also see other problems
The Consumer Price Index, which rose 8.3% in the 12 months to August, may give us a clue about the state of the current economy. However, this indicator is a lagging indicator according to Wood and we should rather watch what commodity prices are when she said.
“Commodity prices are leading indicators, upstream in the stages of processing. Most commodity prices have peaked and, except for food and energy, are falling on a year-over-year basis.”
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The fact that people are starting to have trouble paying their bills is indicated by the increasing use of credit cards instead of debit cards.
Weaker home sales are also indicative of the current recession, with the US seeing a 5.9% drop in existing home sales in July compared to June.
Internal combustion engine cars have a special problem
Cathie Wood notes the fall in the price of petrol-engined cars. Used car prices are already down 13.5% since the beginning of the year, she said.
“Facing inventory losses, used car dealers are likely to disgorge more inventory, which could push price inflation deeply into negative territory.”
At the same time, she tweeted concern about losses in the $1 trillion auto debt market.
Given the accelerated consumer preference shift toward electric vehicles, used car prices and the residual value of all gas powered autos are likely to plummet, causing serious losses in the $1 trillion auto debt market. https://t.co/cyLLGl1gWI
— Cathie Wood (@CathieDWood) October 10, 2022
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