In an open letter addressed to the American central bank, the CEO of Ark Invest Catherine Wood questions the decisions taken by the financial institution in charge of monetary policy. Rising commodity prices, falling household purchasing power, the businesswoman offers an enlightened argument on the current economic situation.
A monetary policy unsuited to market conditions
During the current year, the United States Federal Reserve has raised its interest rates 3 times to combat theinflation of nearly 8.3% in August and is preparing to renew the operation at the beginning of November.
Several economists and influential people in the financial world agree that the direction of the Fed policy will have far greater negative effects than inflation itself.
In a letter published on the Ark Invest website, Cathie Wood highlights several inconsistencies in the policy presented by the FED in particular concerning the data used by the institution.
As a reminder, Ark Invest is an investment fund specializing in the management of ETFs or trackers that replicate the performance of several innovative industries such as the crypto-asset market, but also that of robotics or 3D printing.
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According to Ms. Wood, inflation figures represented by different indicators such as the Consumer Price Index (CPI) or the Personal Consumer Expenditures Price Index (PCE) not do not make it possible to correctly measure the increase in consumer prices.
If the latter take into account variations in energy or food prices, rising raw material costs (commodities in English) is excluded.
“Commodity prices are key indicators to consider. […] Of course, energy and food prices are important factors. However, the Fed’s monetary policy should not, in our view, exacerbate the difficulties associated with the energy and agricultural price shock caused by Russia’s invasion of Ukraine. »
The letter is accompanied by a summary table showing the price variations of raw materials. While the wheat increases by almost a third (+28%) over one yearthe price per barrel of oilpeaked at $135 on April 29, 2022 and has since fallen -16%.
Despite this retracement, the ongoing energy crisis and reduction in circulating supply led by OPEC members recently has resulted in an increase in 28% over 1 year.
| Product | Highest Price Date | Price at the high close | Highest price from last close (%) | Closing price compared to the same period last year (%) |
| Gold | 08/06/2020 | $2,064 | -18% | -3% |
| Silver | 08/10/2020 | $29 | -31% | -11% |
| Construction wood | 07/05/2021 | $1,686 | -74% | -34% |
| Iron | 06/29/2021 | $1,387 | -45% | +7% |
| DRAMs | 09/07/2021 | $5 | -46% | -34% |
| Sea transport of materials | 07/10/2021 | $5,650 | -65% | -65% |
| Copper | 03/04/2022 | $493 | -31% | -20% |
| Oil | 08/03/2022 | $124 | -25% | +18% |
| Corn | 04/29/2022 | $818 | -16% | +28% |
| Cardboard | / | / | / | -53% |
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The stock of large companies: key factors to consider
Cathie Wood continues her argument by recalling some interesting data on the inventory crisis of certain American flagship companies:
“While Walmart and Target’s sales growth barely increased by 10% over the last quarter, their inventories rose by 25.5 and 36.1% respectively. For its part, Nike’s inventory/sales ratio is deteriorating. According to its latest quarterly results, Nike’s worldwide sales rose only 3.6% while its inventories rose 44.2%. If we focus only on North America and products being sent, stocks increased by 64.8 and 85% respectively in the 3rd quarter of 2022! »
Ultimately, according to Cathie Wood, while aggregate demand has weakened following the measures taken by the FED to contain inflation, risks of an economic recession or even of deflation would they not be capital contingencies to consider by the Federal Reserve of the United States?
As data from Walmart or Target shows, businesses are hoarding product as demand slows.
More generally, if a rise in key interest rates reduces the ability of companies to finance their operations and indirectly the purchasing power of households, the American central bank shouldn’t it take into account factors additional to the variation of the CPI and the unemployment rate?
According to Cathie Wood’s argument, thestate of health of its large companies Where the impact of changes in commodity prices on the US economy should also be considered before increasing key interest rates. Case to follow.
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Sources: Ark Invest, Watcher.guru and Yahoo Finance
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