Cathie Wood Says The Fed Is “Playing With Fire” And That Raising Rates Would “Be A Mistake”

April 3, 2022   |   Tags:
Cathie Wood Says The Fed Is "Playing With Fire" And That Raising Rates Would "Be A Mistake"

Apparently, real rates approaching -10% doesn't necessarily mean it's time to hike interest rates. That is, of course, according to "visionary" Cathie Wood, who spewed what can only be described as this incredibly hot take on Saturday.

Better yet, Wood said the Fed raising rates while the yield curve is inverted would be a "mistake", according to Bloomberg. It certainly would be for Wood's flagship ARK Innovation Fund (ARKK), that's for certain. 

On Friday, after a strong jobs report, the two year bond yield rose above that of the 30 year for the first time since 2007, while other parts of the curve have already been inverting over the last several trading sessions. 

Cathie Wood offered up a take that was...well...commensurate with her investing style. The portfolio manager, who never met a cash burning "innovative" tech company she didn't appear to instantly love, Tweeted out on Saturday: "Yesterday, the yield curve - as measured by the difference between the 10 year Treasury and 2 year Treasury yields - inverted, suggesting that the Fed is going to raise interest rates as growth and/or inflation surprise on the low side of expectations…which will be a mistake."

In a thread that followed, Wood wrote that "Economists have learned over many cycles that the 10-2 year measure of the yield curve leads another one: the difference between the 10 year Treasury yield and the 3 month Treasury rate. I have no idea why many strategists and economists are reverting to the latter one now."

"The 10-year to 3 month yield curve is steep because the Fed is telegraphing aggressive interest rate hikes in the face of inflation that has been stoked by supply shocks. Inflation is a highly aggressive tax that is killing purchasing power and consumer sentiment," she continued.

Then, she made the astute argument that consumer sentiment is waning, which is correct. Unfortunately, Wood doesn't seem to realize that the Fed has its hands tied behind its back and has officially run out of options for dealing with the inflation she is referencing. She wrote: "US consumer sentiment, as measured by the University of Michigan, is lower today than it was at the depths of the coronavirus crisis. It has entered 2008-09 territory and is not far from the all time lows in the 80’s when inflation and interest rates hit double digits."

"The economy succumbed to recession in each of those periods. Europe and China also are in difficult straits. The Fed seems to be playing with fire," she concluded. 

Wood's flagship ARKK fund is down -28.6% this year so far. Its benchmark NASDAQ ETF, the QQQ, is down -9%. 


Tyler Durden Sun, 04/03/2022 - 20:00