Ark Invest’s Cathie Wood called the Federal Reserve again on Wednesday, saying the central bank was making a policy mistake by aggressively raising rates as deflation looms. The innovation investor pointed to the so-called yield curve inversion. The yield curve inverts when short-term Treasury rates rise above long-term yields. Many economists consider the 2-10-year portion of the yield curve to be more predictive of a potential recession. “The bond market seems to be signaling that the Fed is making a big mistake. At -80 basis points (measured by 10-year versus 2-year Treasury yields), the yield curve is more inverted now than at any time since the early 80s when double-digit inflation was entrenched,” Wood said in a tweet Wednesday morning. The spread between the yields of 2-year and 10-year Treasury bills rose to 80 basis points. The short end of the curve climbed to 4.33% from just 0.73% at the start of the year as traders anticipated giant rate hikes from the Fed. The Fed raised its short-term borrowing rate to a target range of 3.75% to 4%, the highest level since January 2008.” Bois said. “In our view, deflation is a much higher risk. important than inflation. Commodity prices and massive retail price discounts support this view.” Wood has previously criticized the central bank for basing its monetary policy decisions on lagging indicators: employment and inflation index, while a number of leading indicators are signaling that inflation may have already peaked Ark Invest’s CEO said it was surprising that the energy sector was still trading near from its all-time high, even though the price of oil has fallen significantly from its peak. U.S. crude last traded at $74.37, down from its all-time high of $130 a barrel.” Meanwhile, many pure games, early-stage innovation stocks have fallen below their coronavirus lows. The truth will prevail,” Wood said. Wood’s disruptive tech darlings have been among the biggest losers this year from rising rates. His flagship active fund Ark Innovation ETF (ARKK) is down 63 % since the beginning of the year.
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