Renowned investor Cathie Wood predicts that deflation has already taken hold in the United States across various industries, prompting her to foresee a substantial interest-rate cutting cycle by the Federal Reserve. In an interview with Bloomberg TV on Tuesday, the head of ARK Investment Management, Wood, expressed her belief that the Federal Reserve has gone too far and that a significant reduction in interest rates will be necessary to counter the emerging deflationary trend.
Wood stated, “The Federal Reserve has overdone it; we’re going to see a lot more deflation going forward.” She indicated that if her predictions are accurate and the Fed has indeed been overly aggressive, they will need to implement substantial rate cuts. She went on to suggest that the Consumer Price Index (CPI) inflation rate could turn negative “at some point next year.” Notably, the latest data released on Tuesday indicated a broad slowdown in US inflation, signaling to the markets that the Fed might conclude its interest rate hikes.
Contrary to the consensus on Wall Street, Wood’s outlook clashes with economists’ expectations. According to a Bloomberg survey, economists anticipate annual inflation to decrease to 2.7% next year from October’s 3.2%.
Wood highlighted that the deflationary trend, which initially impacted commodities, is now extending to areas such as airline and auto prices. Her longstanding expectation of an era of falling prices is based on emerging technologies like artificial intelligence, electric vehicles, robotics, genomic sequencing, and blockchain. She has previously criticized the Federal Reserve, expressing concerns that its aggressive rate hikes could heighten the risks of a deflationary bust.
Regarding her flagship fund, the $6.9 billion ARK Innovation ETF (ticker ARKK), Wood acknowledged its challenges in recent years. After a remarkable performance in 2020, ARKK faced declines of approximately 23% in 2021 and 67% in 2022. However, the fund has rebounded with a 33% gain so far in the current year.
“We’ve paid our dues,” Wood stated, referring to ARKK’s performance. Despite the rally this year, the fund still lags behind the tech-heavy Nasdaq 100, which has seen a roughly 44% gain driven by companies not included in Wood’s ETF, such as Nvidia Corp., Microsoft Corp., and Apple Inc.
