Ark Invest CEO warns rate hikes could spur ‘deflating deflation’ in open letter to Fed

Following the report by the United Nations Conference on Trade and Development (UNCTAD) that the US Federal Reserve should stop raising interest rates, Ark Invest CEO Catherine Wood published an open letter to the bank. The US central bank asked it to stop raising interest rates. Wood said that the “unprecedented 13-fold increase in interest rates” has not only shocked the world but also pushed the economy to the risk of “deflationary bankruptcy”.

Ark Invest’s Catherine Wood says Fed’s last 75bps rate hike was ‘surprising’, Letter says 13 to 16x hike to benchmark bank rate is risky

Ark Invest CEO Catherine Wood published an open letter to the Federal Reserve, noting that it is risky for the central bank to raise the central bank’s aggressive benchmark interest rate. . “The Fed’s final decision to raise the Fed’s deposit rate by 75 basis points was a surprise,” Wood’s letter said.

Wood’s letter said that the Fed’s concept of upstream price deflation mitigation “has the potential to translate into downstream deflation.” Furthermore, the Ark Invest CEO said that the Fed’s decisions are based on two “lagging indicators,” including the inflation rate and the employment index.

The CEO’s letter follows a recent report released by the United Nations Conference on Trade and Development (UNCTAD), which expected the Fed to stop raising interest rates. UNCTAD estimates that for each time the Fed raises interest rates, economic output for rich countries falls by 0.5% and for poorer countries, it falls by 0.8% over a three-year period.

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Both Wood’s and UNCTAD’s complaints echo the criticism the Federal Reserve has received from US Senator Elizabeth Warren (D-Mass). Warren complained about the Fed raising the federal funds rate, and she discussed the matter further with CNN. Warren said at the time she was “very worried” that a rate hike by the Fed would prompt a US recession.

Ark Invest’s Wood believes that raising interest rates could trigger a deflationary spiral. “Is it possible that the unprecedented 13 rate hikes in the past six months –– likely 16 on Nov. 2 –– have shocked not only the US but the world and increased downside risks broadcast?” Wood asked in an open letter to the Fed published on Monday.

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