The US economy is teetering on a potential repeat of the Roaring Twenties or, if the Federal Reserve ignores deflationary pressures and presses ahead with a tightening cycle, the Great Depression, warned Ark Investment Management’s Cathie Wood.
Wood was quoted as saying in a string of messages in Twitter that the current economy echoes 1920, when World War I and the Spanish flu – and the associated supply chain snarls – pushed inflation above 20 percent only to have it drop dramatically the following year.
The Federal Reserve, which lowered interest rates at the time, helped usher in the era known as the Roaring Twenties, which was a decade of economic growth.
But a decade later, amid warnings of over-speculation in the stock market, the Fed increased interest rates.
Hence, the Great Crash was then followed by the Great Depression.
Wood urged the Fed to pivot from its current rate-hike cycle. Had the Fed ignored the warning and the result would be disastrous. “If the Fed did not pivot, the set up will be more than 1929.”
According to Wood, the economy is showing signs of reducing inflationary pressures. “We would not be surprised to see broad-based inflation turn negative in 2023,” Wood added.
Wood also took aim at the bipartisan Chips and Science Act, which President Joe Biden said will help the United States “out-compete the rest of the world” in chipmaking.
“The Chips Act could harm trade perhaps more than we understand,” she warned.
