Are We Going Back to The Roaring 20s? Cathie Wood Talks About Hiking Interest Rates.
- Blog
- November 15, 2022
Are We Going Back to The Roaring 20s? Cathie Wood Talks About Hiking Interest Rates.
Cathie Wood, Ark Invest’s founder and chief investment officer of an investment management company, expressed her concerns that the Federal Reserve’s course of action will potentially lead to inflation and a worldwide economic catastrophe like that of 1929.
The Great Depression saw the Federal Reserve boost interest rates to quell financial speculation in 1929. Then in 1930, Smoot-Hawley Tariff Act was passed by Congress, imposing duties of more than 50% on about 20,000 commodities across the world. It will be similar to1929 if the Fed doesn’t change course, she tweeted, and Twitter and Tesla CEO Elon Musk agreed.
She added that it is possible we are going back to the Roaring Twenties if inflation unravels like this; the structure is extremely similar.
The Ark Invest founder mentioned that wars and the Spanish Flu took hold of the world before the Roaring Twenties. She further said that inflation reached 24% in June 1920 and the Federal Reserve then reacted by hiking interest rates to 7% from 4.6% in 1919-1920.
The Fed dropped interest rates from 7% in May 1921 to 4% in July 1922, triggering the Roaring Twenties. Inflation subsequently dropped harshly in a year to negative 15% in June 1921.
Considering the conflicting data and the evident difference in the outcomes, the Fed should be taking into account the potential risks of the current policy; instead of voting unanimously, added Wood, in reference to the Great Depression and the Roaring Twenties, as two conceivable outcomes.
