• Reiterates deflationary outlook as CPI comes in soft
  • Says Federal Reserve will need to cut rates ‘significantly’

Cathie Wood said that deflation is already underway in the US across industries and will force the Federal Reserve to kick off a big interest-rate cutting cycle.

“The Federal Reserve has overdone it, we’re going to see a lot more deflation going forward,” the head of ARK Investment Management told Bloomberg TV Tuesday. “If we’re right, and they’ve gone way too far, they’ll have to cut fairly significantly.”

She added that the CPI inflation rate could turn negative “at some point next year.” US inflation broadly slowed in October, which markets cheered as a strong indication that the Fed is done raising interest rates. The aforementioned data was released Tuesday.

Wood’s prediction clashes with the consensus on Wall Street. Economists expect annual inflation to tick down to 2.7% next year from 3.2% in October, according to a Bloomberg survey.

Wood said that a deflationary trend that began in commodities is now extending out to airline and auto prices. She has long expected an era of falling prices, backed by new technologies including artificial intelligence, electric vehicles, robotics, genomic sequencing and blockchain. She has also criticized the Fed previously, saying its aggressive hikes could increase the risks of a deflationary bust.

ARK’s Flagship Fund

After a blockbuster year in 2020, Wood’s flagship $6.9 billion ARK Innovation ETF (ticker ARKK) tumbled roughly 23% in 2021 and 67% in 2022. It’s up 33% so far this year.

“We’ve paid our dues,” Wood said. “We had a great year through July, then a little bit of a setback, as inflation fears picked up again. But I think today’s report is very important in terms of — look through there and see the price declines. You’ll see a number of them.”

Despite ARKK’s rally this year, the fund is still trailing the tech-heavy Nasdaq 100’s roughly 44% gain, which has been propelled by companies absent from Wood’s ETF, including Nvidia Corp.Microsoft Corp. and Apple Inc.

Written by:  and  — With assistance from Romaine Bostick @Bloomberg.com