The U.S. economy could face deflation in the next six months, and the Federal Reserve may soon be forced to abandon aggressive monetary policy, said Cathie Wood, chief executive of Ark Invest.
Wood said inflation is expected to be surprisingly low, and she wouldn’t be surprised if there were several consecutive months of deflation over the next six months.
Wood pointed to a slowing energy market and high prices forcing gasoline demand to a 25-year low. Despite its continued focus on fighting inflation, the Fed has focused too much on lagging indicators such as employment and core inflation, ignoring other leading indicators.
Wood has previously stated,goldAnd leading inflation indicators such as copper point to deflation risks. Even oil prices have fallen more than 35% from their highs, wiping out most of this year’s gains.
In addition, the recent overstock of retailers may be forced to deep discounts in the coming year-end shopping season, which will exacerbate the trend of inflation to deflation.
Wood compared Fed Chairman Powell to former Fed Chairman Paul Volcker, who in the early 1980s controlled inflation by raising interest rates sharply. Wood pointed out that Powell’s current Volcker strategy is not in line with the economic environment.
“Bauer is using Volcker’s sledgehammer in the face of a two-year supply-related inflation shock, which I think is a mistake,” Wood said.