Cathie Wood has denied that inflation concerns are rising, insisting that underlying price pressures are largely dissipating, despite the US headline CPI rising to 4.2% in May.
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Cathie Wood said underlying inflation was close to 0.5% even though the US headline CPI rose to 4.2% in May. The CEO of ARK Invest argued that inflationary pressures are easing, citing productivity growth and torflation data. Wood believes Fed Chairman Kevin Warsh can support economic growth if inflation falls toward 1% from 0%.
Inflation concerns dominated conversations at recent investor conferences across Asia and Europe, with many participants questioning whether sustained price increases would force the Fed to tighten monetary policy further, said the CEO of ARK Invest.
In a series of posts on X, Wood said he was surprised by investors’ strong expectations for inflation to remain high, adding that he thought inflation could slow sharply for reasons other than falling oil prices.
The comments came as financial markets increasingly believe the Fed could raise interest rates by another 25 basis points in September after the latest inflation data. At the same time, Fed Chairman Kevin Warsh continues to emphasize the central bank’s commitment to returning inflation to its 2% target.
Labor costs and real-time data suggest slowing inflation
Wood took a different view of price pressures, arguing that underlying inflation, measured by labor costs rather than headline consumer prices, is already close to disappearing.
Wood said U.S. productivity increased by about 3% in the first quarter compared to the same period last year, and hourly compensation increased by about 3.5%. Using these numbers, he said unit labor costs represent real inflation of only 0.5% year-on-year, suggesting that businesses are not facing significant cost-driven inflation.
Wood also pointed to alternative inflation measures that differ from official government statistics. Citing data from Truflation, he said the platform’s real-time inflation measure fell from about 11% year over year to 1.8% in 2022, while its core inflation measure fell to 1.4%.
Based on these indicators, Wood argued that current inflation trends are much weaker than the composite CPI statistics indicate. He argued that investors who focus on government inflation statistics may be missing signals from productivity and private sector price indicators.
Wood expects Kevin Warsh to support growth once inflation eases
Looking ahead, Wood said he believes Warsh understands the difference between official inflation measurements and the situation unfolding across the economy.
In his assessment, while productivity gains have helped reduce inflationary pressures, existing government inflation measures contain methodological flaws that may overestimate the underlying rate of price growth.
Wood added that he expects the Fed under the Warsh administration to focus more on supporting economic growth rather than maintaining restrictive monetary policy if the U.S. economy continues to expand while inflation declines toward the 0% to below 1% range.
https://x.com/CathieDWood/status/2069817965369843959
His outlook stands in contrast to current market conditions, where traders are pinning expectations for further interest rate hikes following a better-than-expected May consumer price index (CPI) report. Still, Wood argued that continued improvements in productivity and easing cost pressures could ultimately reduce the need for monetary tightening.
Wood concluded his remarks by saying that he expects the Fed’s policy stance to evolve as inflation eases further, allowing the central bank to promote economic growth rather than focusing primarily on controlling inflation.
