Unable to bear it any longer, "Woodstock" publicly wrote to the Federal Reserve: The policy on fighting inflation is wrong

By 0xluke, TechFlow

On October 10, according to CNBC, Cathie Wood, CEO of ARK Investment Management and widely known as "Ark," published an open letter addressed to the Federal Reserve. In the letter, Wood stated that the Fed's aggressive stance on inflation may be misguided.

Wood argues that the Fed should instead learn from commodity prices rather than focusing on lagging indicators such as prior months’ employment and price indices—a policy approach that implies deflation, not inflation, poses the greatest economic risk ahead.

"In our view, the Fed appears to be focused on two lagging indicators—downstream inflation and employment—both of which are sending mixed signals. The market should question the Fed’s consistent calls for higher interest rates," Wood wrote.

Specifically, current U.S. consumer price index (CPI) and personal consumption expenditures (PCE) price index both show persistently high inflation. In August, overall CPI rose 0.1% month-over-month and 8.3% year-over-year, while PCE increased 0.3% MoM and 6.2% YoY. Excluding food and energy, both readings are even higher.

On the labor front, U.S. job growth has slowed but remains strong: nonfarm payrolls increased by 263,000 in September, and the unemployment rate fell to 3.5%.

However, Wood points out that prices for commodities such as lumber and copper have not only peaked but are now lower compared to the same period last year. Commodity prices are generally considered leading indicators of economic activity.

The Fed has already raised interest rates by 75 basis points in each of its last three meetings, mostly with unanimous votes. Markets expect another large rate hike—potentially another 75 bps—at the early November meeting.

Wood expressed frustration:

"After an unprecedented 13-fold increase in interest rates over the past six months, this could rise to 16-fold after November 2. Hasn’t this already shocked America and the world, increasing the risk of deflationary depression?"

Wood certainly has reason to be frustrated. Her flagship fund, the ARK Innovation ETF (ARKK), suffered $803 million in redemptions in August alone—the largest outflow in nearly a year since September 2021—and is down more than 60% year-to-date.

At the end of September, Wood announced her expansion into private investing. Her firm, ARK Investment Management, launched a new venture fund (ARK Venture Fund) this week targeting individual investors, with a minimum investment of just $500.

Just over a year ago, Wood was hailed as the "Queen of Bulls" and the "female Buffett." Now, she must endure the pain brought by the retreat of the Fed’s easy-money era.

Vincent Mortier, Deputy Chief Investment Officer at Amundi, one of Europe’s largest asset managers, commented:

"ARK follows a high-risk, high-reward strategy, concentrating on the most promising yet most expensive segments of the market. Most of its investments are highly sensitive to interest rates, so if this segment undergoes any form of repricing, the ETF will be more vulnerable to downside than the rest of the market."

At the end of the day, it is the era and the cycle that make heroes. Success ultimately comes from moving with the tide!