MW Cathie Wood says inflation is unwinding and will surprise on the low side of expectations

By Isabel Wang

Money manager Cathie Wood, the founder and chief executive officer of Ark Investment Management, said U.S. inflation is unwinding after surging to a 40-year high over the past year, and a significant meltdown in the bond market in 2022 means the Federal Reserve is close to the end of its tightening cycle.

"We think the market is leading the Fed," Wood said in an interview with CNBC's "Squawk Box" on Wednesday. "The bond market is basically saying the Fed is close to the end of this tightening move, and is also saying that inflation will surprise on the low side of expectations, which means when we look back, the past two years inflation issue and interest rate issue has been a function of massive supply shocks to the system."

Wood said what the markets have been through is a "very big inflation and interest-rate scare" that hit long-duration assets "incredibly hard" over the past year. A Treasury debt sell-off sent yields soaring in 2022 as the Federal Reserve has been raising its policy interest rate nearly monthly to bring down inflation.

However, Treasuries have rallied since the start of 2023 on widespread anticipation that the central bank is close to the end of its interest-rate hikes and may even cut rates by the end of this year.

See: Bond investing 101: What to know as the Fed sticks to its inflation fight

Bond yields, which fall as prices increase, declined in January with the yield on the policy-sensitive 2-year Treasury note falling 19.2 basis points to 4.207% for the month. The monthly decline was the largest since March 2020, according to Dow Jones Market Data. The 10-year Treasury note yielded 3.527% as of Tuesday afternoon, booking monthly decline of 29.9 basis points.

Treasury yields traded lower on Wednesday morning as traders await the Federal Open Market Committee/s announcement of the interest-rate decision which is due out at 2 p.m. Eastern. Fed Chair Jerome Powell is scheduled to hold a news conference half an hour later to elaborate on the decision.

See: Cathie Wood's ARKK logs best month ever as tech shares surge

-Isabel Wang

(END) Dow Jones Newswires

February 01, 2023 10:45 ET (15:45 GMT)

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