Ark's Cathie Wood issues open letter to the Fed, saying it is risking an economic 'bust'

Cathie Wood, Founder, CEO, and CIO of ARK Invest, speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, May 2, 2022.

The Federal Reserve likely is making a mistake in its hard-line stance against inflation Ark Investment Management's Cathie Wood said Monday in an open letter to the central bank.

Instead of looking at employment and price indexes from previous months, Wood said the Fed should be taking lessons from commodity prices that indicate the biggest economic risk going forward is deflation, not inflation.

"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," Wood said in the letter posted on the firm's website.

Specifically, the consumer price and personal consumption expenditures price indexes both showed inflation running high. Headline CPI rose 0.1% in August and was up 8.3% year over year, while headline PCE accelerated 0.3% and 6.2% respectively. Both readings were even higher excluding food and energy, which saw large price drops over the summer.

On employment, payroll growth has decelerated but remains strong, with job gains totaling 263,000 in September as the unemployment rate fell to 3.5%.

But Wood, whose firm manages some $14.4 billion in client money across a family of active ETFs, said falling prices for items such as lumber, copper and housing are telling a different story.