Cathie Wood Says US Already In Recession, Slams The Fed For Worrying More About Legacy Than Economy

Zinger Key Points
  • Inventories-buoyed growth in the second quarter may give way to more economic pain for the rest of the year
  • Fed's current moves already are more draconian than Volcker’s and ignores deflationary signals.

Close on the heels of the Federal Reserve raising interest rates by 75 basis points, money manager and Ark Invest founder Cathie Wood came down hard on the central bank and also stated that the U.S. is already in a recession.

Recession Has Set In: The U.S. economy went into a recession in the first quarter, Wood said on Sunday as part of a tweetstorm. If enormous inventories "bloat real GDP in the second quarter, they will unwind and hurt growth for the rest of the year," she added.

The star stock picker also noted that consumer sentiment in early June has dipped to a record low, extending back to the 1940s. Consumer sentiment, according to the analyst, is lower today than levels seen during the global financial crisis of 2008-09 and the two recessions in 1980-82. This was when former Fed chair Paul Volcker "chocked" a 15%+ inflation rate with 20% interest rates, she added.

Related Link: Mid-Morning Market Update: Markets Open Lower; US Inflation Rate Accelerates to 8.6%

Fed Bent On Protecting Legacy: While Volcker doubled Fed rates from 10%-20% in less than a year, today's central bank, led by Jerome Powell, has increased the fed funds rate seven-fold over the last year and is also signaling a doubling from here, Wood said.

"Its moves already are more draconian than Volcker's," she added.

"The Fed seems to be worried more about its legacy than the economy: it is ignoring deflationary and dangerous signals."

Wood said the Fed is relying on lagging indicators like the consumer price index. Member of the Federal Reserve Board Christopher Waller has called for another 75-basis-point rate hike in July, she noted

Related Link: Cathie Wood Sees This Technology Accelerating GDP Growth To 50% Per Year

Inflationary Fears Receding: While noting that gold is one of the best leading indicators of inflation, Wood said the price of the yellow metal has dropped from a high of $2,000 per ounce during the pandemic to $1,840 during the past two years.

Lumber prices have also dropped over 50%, she noted.

"If inventories and stock prices are leading indicators for employment and wages, which in this case I believe they are, then fears of cost-push inflation a la 1970's should disappear during the next six months," Wood said.

The SPDR S&P 500 ETF Trust SPY closed Friday's session 0.22% higher at $365.86, according to Benzinga Pro.

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Posted In: Analyst ColorEconomicsFederal ReserveAnalyst RatingsCathie Wood
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