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Cathie Wood says US dollar strength could yet prompt Fed pivot

Bloomberg9/27/2022 08:56 AM GMT+08  • 3 min read
Cathie Wood says US dollar strength could yet prompt Fed pivot
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US dollar strength has been “devastating to the rest of the world and should come back to bite” the country’s competitiveness and economic activity, eventually “forcing the Fed to pivot” away from its restrictive monetary policy, Ark Investment Management CEO and Founder Cathie Wood said in a series of tweets on Monday.

The yield curve “suggests” that US monetary policy has not been this restrictive since the ‘80s. As measured by the 2-year Treasury yield relative to the 10-year Treasury yield, it has inverted by 50 basis points, the 10-year yield at 3.75% compared to the two-year at 4.25%. — Cathie Wood (@CathieDWood) September 26, 2022

In @ARKInvest’s view, US monetary policy is significantly more restrictive than in the ‘80s when, to kill inflation, Fed Chair Volcker pushed the Fed funds rate up two-fold from 10% to 20%. Chair Powell and team have increased it 13-fold from 0.25% to 3.25% to slay the dragon. — Cathie Wood (@CathieDWood) September 26, 2022

Under Volcker, the increase in long Treasury yields was 1.6X, from 10% to 16%, compared to 7.4X, from 0.5% to 3.7% under Powell and team. Risk aversion is pummeling all assets except cash, but the Fed seems fixated on hiking rates another 100+ basis points to protect its legacy. — Cathie Wood (@CathieDWood) September 26, 2022

Meanwhile, commodity prices as measured by Refinitiv’s CRB index have dropped ~42% since their peak in mid 2008, ~25% since their lower peak in 2011, and ~19% since an even lower peak earlier this year. — Cathie Wood (@CathieDWood) September 26, 2022

A 58% increase in the trade-weighted dollar since early 2008 helps to explain the deflationary forces that are building in the pipeline once again. Most commodities are priced in dollars. — Cathie Wood (@CathieDWood) September 26, 2022

See also: Global growth to be as weak next year as 2009, IIF forecasts

The inflation surge in the late seventies/early eighties had been brewing for 15 years, starting with the Vietnam War and The Great Society social programs in 1964 and exacerbated by the end of the gold-exchange standard in 1971. — Cathie Wood (@CathieDWood) September 26, 2022

By the time this Fed tackled the current surge, inflation had been brewing for ~15 months, not 15 years. Now, it is “keeping at it” with a sledgehammer 13 times more powerful than the one Volcker wielded in the ‘80s. In so doing, the Fed could undermine its legacy. — Cathie Wood (@CathieDWood) September 26, 2022

Last week, Japan and China sold dollars to protect their currencies against a parabolic dollar that is causing significant harm to the global economy. In other words, they are starting to “ease” dollar-based monetary policy by putting more dollars into the system. — Cathie Wood (@CathieDWood) September 26, 2022

Japan’s and China’s dollar sales could be the first sign that “monetary easing” is on the way. The dollar’s parabolic move has been devastating to the rest of the world and should come back to bite US competitiveness, jobs, and economic activity, forcing the Fed to pivot. — Cathie Wood (@CathieDWood) September 26, 2022

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