Cathie Wood sees Fed making mistake as inflation turns to deflation

Fed Headquarters

Fed Chairman Jerome Powell is making a mistake as he continues on a path of outsized interest rate hikes to tame inflation, Cathie Wood, Chairman of Ark Invest, tweeted.

That's because inflation is quickly turning into deflation, she said, adding that this means the Fed will likely have to pivot away from its interest rate hikes sooner than the market thinks.

Making matters worse, according to Wood, is the fact that the Fed is overly focused on lagging indicators like employment and core inflation, rather than leading indicators which show signs of deflation.

"Leading inflation indicators like gold and copper are flagging the risk of deflation. Even the oil price has dropped more than 35% from its peak, erasing most of the gain this year," she said.

The US annual inflation falls to 8.5% in July, compared to 9.1% in the previous month, which was the highest since 1981.