Cathie Wood rejects Fed’s inflation “jawboning,” pivots back to deflation narrative

Wall Street’s rate-hike jitters have wreaked havoc on high-growth tech stocks — and Cathie Wood’s Ark ETFs were front and center for the damage yet again.

Still, Wood dismissed concerns over inflationary pressures, reaffirming an earlier assertion that deflation remains the focus for her firm during a webcast on Tuesday. The Ark Invest CEO also said that price increases were likely to ease as supply chain issues resolve.

Wood’s remarks come amid Federal Reserve Chair Jerome Powell’s confirmation testimony on Tuesday, in which he signaled that if the pace of price increases fails to slow, the central bank will get more aggressive with raising short-term borrowing costs.

Ark Invest’s beleaguered innovation fund (ARKK) has now lost half its value from its peak as worries of more aggressive monetary policy by the Federal Reserve sent technology stocks — namely the “disruptive” but often unprofitable picks that form her investment strategy — cratering to start the new year. Even as the fund rode a tech rebound on Tuesday to eke out a modest comeback, ARKK is down more than 50% from it’s all-time high in February 2021. ARKK ended the session 2.46% higher to close at $86.98 per share.

In a separate webcast on Jan. 7 addressing the recent rate rout, Wood maintained her view that losses were temporary, even stating that Ark Invest anticipates “inflation is indeed transitory,” based on other economic measures such as velocity — the ratio of GDP to money supply — which has decelerated since its peak at the onset of the pandemic.

“What we believe has happened here is that the Fed, having suggested that inflation was transitory since the beginning of the coronavirus, was becoming concerned when it saw CPI inflation year-over-year at 6.8%, and it does not want to be blamed for inflation being sustained and certainly not moving out of control,” she said in the video.

“We think this is a bit of jaw-boning here,” she added. “The Fed wants to err on the side of hawkishness, certainly from a jaw-boning point of view because they don’t want inflation to continue to escalate.”

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Wood’s peers on Wall Street don’t seem to share that confidence. Although some have predicted prices could level out by the end of the year, many are bracing for the possibility inflation could linger.

Goldman Sachs, Evercore ISI, and Deutsche Bank are among Fed watchers repricing the Federal Reserve’s pace on rate hikes, predicting short-term interest rates will be 100 basis points higher by the end of 2022 than where they are now.

JPMorgan CEO Jamie Dimon said in an interview with CNBC on Monday that he hoped for a “soft landing,” by the Fed, but acknowledged inflation could be worse than policymakers anticipate and rates could be increased more than currently executed.

By contrast, even as her fund bears the brunt of the Fed-spurred sell-off, Wood said her “conviction couldn’t be higher” that her favorite innovation companies “will continue to cause explosive growth — the likes of which we haven’t seen in our lifetimes.”

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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