Cathie Wood says Powell's 'sledgehammer' to 'kill' inflation is far more powerful than Volcker's in the 1980s: 'The Fed could undermine his legacy'

Cathie Wood, the founder of ARK Investment Management, said that current U.S. monetary policy is significantly tighter than in the 1980s when, to kill inflation, former Federal Reserve Chairman Paul Volcker had pushed the Federal funds rate to double from 10% to 20%.

By comparison, Jerome Powell and his team increased it 13-fold, from 0.25% to 3.25% for "slaying the dragon," Wood said.

“At the time this Fed tackled the current surge, inflation had been simmering for about 15 months, not 15 years. Today it 'continues' with a mace 13 times stronger than what Volcker used in the 80s," she said.

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Rising Yields: Wood also pointed out that under Volcker Treasury yields increased 1.6 times from 10% to 16%, while under Powell they were multiplied by 7.4. "Risk aversion is crushing all assets except cash, but the Fed seems determined to raise rates more than 100bps to protect its legacy," she tweeted.

What Wood seems to be pointing to is the accentuated tightening of yields that is out of line even with a rising interest rate regime. Bond markets tend to go through a rough patch when interest rates rise, but such a spike in yields weighs heavily on the fixed income sector.

"Meanwhile, commodity prices as measured by Refinitiv's CRB index have fallen about 42% since their peak in mid-2008, about 25 % since their lowest peak in 2011 and ~19% since an even lower peak earlier this year,” Wood tweeted.

His comments come amid a bloodbath in global equity and commodity markets, sparked by rate hikes and aggressive projections from the Federal Reserve.

The Nasdaq index has lost nearly 25% in the past six months.

Dollar dilemma: Wood also explained how the parabolic movement of the dollar has been devastating to the rest of the world and is expected to come back to hurt states' competitiveness, jobs and economic activity States, forcing the Fed to pivot.

"Last week, Japan and China sold dollars to protect their currencies against a parabolic dollar that is causing significant damage to the global economy," she tweeted. .

Price Action: The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500, is down more than 23% year-to-date. The largest ETF, which was founded in 1993 and is expected to turn 30 in January 2023, has assets to the tune of over $331 billion. Since inception, the fund has posted an annual return of 9.73% based on end-August data.

In comparison, Cathie Wood's ARK Innovation ETF ARKK is down more than 61% since the start of the year.

Photo courtesy: Ark Investment Management

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