Cathie Wood shot to fame in the bull market for buying tech stocks.

Now the founder of ARK Invest is using her fame to lecture the Federal Reserve.

She seems to analyze inflation the same way she analyzes stocks, with a focus on selected data points leading to a rosy conclusion.

In an open letter to the Federal Reserve, she explained:

The Fed seems focused on two variables that, in our view, are lagging indicators –– downstream inflation and employment –– both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates.

Inventory issues for Walmart Inc. (NYSE: WMT), Target Corp (NSYE: TGT) and Nike Inc (NYSE: NKE) are important elements in her deflationary argument.

Her data-driven approach highlights price declines in selected commodities.

The data, however, doesn’t seem to support her entire argument.

Data Contradicts Cathie Wood’s Argument

The Producer Price Index for all commodities is up 15.3% over the last year.

This includes more than the selected few Wood highlighted.

The Producer Price Index Waves a Red Flag

Two months of declines in the index took it off its highs.

But two months cannot define a trend.

If it could, one of Wood’s favorite stocks, Zoom Video Communication Inc. (Nasdaq: ZM), would be worth trillions after two months of strong performance during the height of the pandemic.

ZM is trading below $75 as I write.

That seems to be about 75% below ARK’s cost basis of $278 on its position.

But ARK’s holding on for a good reason.

ARK’s Model Explains Its Hold on Zoom

ARK’s model shows a price target of $1,500 in 2026.

The bearish case shows a price target of $700.

This is because the service is expanding.

The model ignores Zoom alternatives in the market and the many users who signed up for free accounts.

Wood might be right that the Fed has won the war on inflation.

But the Fed has studied the lessons of the 1960s and 1970s.

Bottom line: Taming inflation requires a sustained period of high interest rates.

Cutting rates too soon allows inflation to rebound and soar to new highs.

I hope the Fed ignores Cathie Wood for the sake of all of us.

Her data-driven approach might not be as thorough as the Fed’s.


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