She said Co-founder of Arc Investment Management, Cathy WoodAny decision by the Federal Reserve to raise interest rates as the yield curve inverted would be wrong.
This comes after US government bond yields reached new levels of inversion on Friday after a strong jobs report boosted bets that the central bank will increase the size of its next interest rate hike.
The yield on the two-year bond has exceeded its 30-year counterpart for the first time since 2007.
In a series of tweets on Saturday, she apparently wrote that the Fed was “playing with fire.”
“Yesterday, the yield curve – as measured by the difference between 10-year Treasury yields and 2-year Treasury yields – inverted, indicating that the Fed will raise interest rates with growth and/or inflation surprising on the lower side of expectations,” Wood tweeted. .which would be a mistake.”
Ironically, I wrote: “Economists have learned over several cycles that the 2- and 10-year bond index clearly expresses economic cycles: the bond index, which measures the difference between the 10-year Treasury bond yield and the 3-month Treasury price—is not I have no idea why so many strategists and economists are going back to the latter now.” It is a hint that some economists have resorted recently to reassure investors that the recession is still far away, as the yield curve has not inverted between the last two indicators.
Economists have learned over many cycles that the 10-2 year measure of the yield curve leads another one: the difference between the 10 year Treasury yield and the 3 month Treasury rate. I have no idea why many strategists and economists are reverting to the latter one now.
— Cathie Wood (@CathieDWood) April 2, 2022
Wood went back to explaining her hint, writing: “The yield curve that measures the difference between 10-year to 3-month bonds is steep because the Fed is raising interest rates aggressively in the face of inflation fueled by supply shocks. Inflation is a very aggressive tax that kills purchasing power and consumer sentiment.” .
The 10-year to 3 month yield curve is steep because the Fed is telegraphing aggressive interest rate hikes in the face of inflation that has been stoked by supply shocks. Inflation is a highly aggressive tax that is killing purchasing power and consumer sentiment.
— Cathie Wood (@CathieDWood) April 2, 2022
She added that US consumer sentiment, as measured by the University of Michigan, is lower today than it was in the depths of the coronavirus crisis. He entered the 2008-2009 region not far from all-time lows in the 1980s when inflation and interest rates hit double digits.
The economy succumbed to recession in each of those periods. Europe and China also are in difficult straits. The Fed seems to be playing with fire.
— Cathie Wood (@CathieDWood) April 2, 2022
She emphasized that the economy succumbed to recession in each of those periods, and that Europe and China are also in a difficult situation. “It looks like the Fed is playing with fire,” she wrote.