Ark Invest CEO warns that rate hikes could fuel a “deflationary crisis” in an open letter to the Fed

According to Catherine Wood, the “unprecedented 13-fold increase in interest rates“has not only shocked the world, but it is also pushing the economy towards the risk of a “deflationary collapse“.

Catherine Wood of Ark Invest says the Fed’s latest 75bps rate hike was “surprising“, and that multiplying benchmark bank rates by 13 or 16 is risky.

Ark Invest CEO Catherine Wood has released an open letter to the Federal Reserve that notes that the central bank’s aggressive increases in benchmark bank rates have been risky. Wood’s letter states that “the Fed’s latest decision to raise the federal funds rate by 75 basis points was surprising.“

Catherine Wood’s letter states that the Fed’s concept of reducing upstream price deflation is “likely to turn into downstream deflation.“In addition, Ark Invest’s CEO says the Fed’s decisions are based on two “lagging indicators“, which include the inflation rate and employment metrics.

The CEO’s letter follows the recent report released by the United Nations Conference on Trade and Development (UNCTAD), which also wants the Fed to stop raising rates. UNCTAD estimates that with each Fed rate hike, economic output in rich countries declines by 0.5 percent and in poorer countries by 0.8 percent over a three-year period.

Catherine Wood’s and UNCTAD’s complaints are also similar to the criticism the Federal Reserve has received from U.S. Senator Elizabeth Warren (D-Mass). Warren has complained about the Fed raising the federal funds rate and discussed the issue with CNN. Elizabeth Warren stated at the time that she was “very concerned“that the Fed’s rate hikes will fuel a recession in the United States.

Ark Invest’s Catherine Wood thinks rate hikes could cause a deflationary spiral. “Could it be that the unprecedented 13-fold increase in interest rates over the past six months – and probably 16-fold on Nov. 2 – has shocked not only the U.S. but the world and increased the risks of a deflationary collapse?“. asks Catherine Wood in her open letter to the Fed published Monday.