Cathie Wood dismissed rising concerns about inflation despite the headline US CPI rising to 4.2% in May, arguing that underlying price pressures are about to disappear.
summary
- Cathie Wood says core inflation is close to 0.5% despite the headline US CPI rising to 4.2% in May.
- ARK Invest CEO cites productivity gains and inflation data to say inflation pressures are easing.
- Wood believes Fed Chairman Kevin Warsh could support economic growth if inflation falls toward 0% to 1%.
According to ARK Invest’s CEO, inflation concerns dominated conversations during her recent meetings with investors across Asia and Europe, with many participants wondering whether continued price growth would force the Federal Reserve to tighten monetary policy further.
In the X series SupportsWood said she was surprised by how strongly investors expected inflation to remain high, adding that she believed inflation could weaken sharply for reasons beyond falling oil prices.
The comments come as financial markets have increased bets that the Fed can Raise interest rates by another 25 basis points in September after the latest inflation data. Meanwhile, Federal Reserve Chairman Kevin Warsh continued to stress the central bank’s commitment to returning inflation to its 2% target.
Labor costs and real-time data point to weak inflation
In offering a different view of price pressures, Wood argued that core inflation is actually close to disappearing when measured by labor costs rather than headline consumer prices.
According to Wood, productivity in the United States increased about 3% year over year during the first quarter, while hourly compensation rose about 3.5%. Using these figures, she said unit labor costs indicate core inflation of just 0.5% year-on-year, suggesting companies are not facing significant cost-driven inflation.
Wood also pointed to alternative inflation measures that differ from official government statistics. Citing data from Truflation, it said the platform’s real-time inflation gauge fell from around 11% year-on-year in 2022 to 1.8%, while the core inflation reading fell to 1.4%.
Based on these indicators, Wood said current inflation trends are much weaker than the headline CPI numbers indicate. She emphasized that investors who place too much weight on government inflation data may be ignoring signals coming from productivity and pricing measures in the private sector.
Wood expects Kevin Warsh to support growth if inflation declines
Looking ahead, Wood said she believes Warsh understands the difference between official inflation readings and conditions developing across the broader economy.
According to its assessment, productivity gains help reduce inflationary pressures, while current government inflation measures contain methodological shortcomings that could overstate underlying price growth.
Wood added that if the U.S. economy continues to expand while inflation falls toward a range of 0% to 1% or less, she expects the Fed under Warsh to focus more on supporting economic growth rather than maintaining restrictive monetary policy.
https://x.com/CathieDWood/status/2069817965369843959
Its forecast contrasts with the current market situation, where traders have increased their expectations Another rise in interest rates After the Consumer Price Index report for May came in stronger than expected. However, Wood argues that continued improvement in productivity and easing of cost pressures could eventually reduce the need for tighter monetary policy.
Concluding her remarks, Wood said she expects the Fed’s policy stance to evolve once inflation weakens further, allowing the central bank to encourage economic growth rather than focusing primarily on containing inflation.
