Cathie Wood Says Real Yields, Not Inflation, Are Driving Rates — Bill Ackman Thinks The Fed May Have Made A ‘Mistake’

Ark Invest CEO Cathie Wood said Tuesday that rising interest rates appear to be driven more by real yields than inflation, as she weighed in on Bill Ackman‘s hypothesis that the Federal Reserve’s rate hikes could backfire in an artificial-intelligence-driven economy.

Real Yields, Not Inflation

“Interest rates seem to be rising because of real yields more than inflation,” she said, with “real growth surprising on the high side of expectations in this technology revolution.”

Earlier this month, Wood said that even as the stock market hits record highs amid higher interest rates, the current technology revolution will impact the global economy and equity markets more than the Industrial Revolution did.

The Fed raised rates by 25 basis points this month to 3.75%-4.00%, its first hike since 2023.

Did the Fed make a Mistake?

Ackman argued that the Fed’s assumption that raising rates curbs inflation “is predicated on the belief that higher rates reduce demand and investment.”

He questioned whether that logic still holds, since “the demand for intelligence and energy is unaffected by higher rates” as “winning the race for super intelligence has a near infinite ROI” and compute demand “will remain incalculable.”

Ackman argued that higher rates could instead fuel more inflation, since “interest costs are embedded in everything,” warning of a loop where rate hikes force the Fed to raise rates further.

“But what if the old models don’t apply to the current paradigm and the Fed is wrong?”

The CME FedWatch tool currently shows a 55.2% probability of no change and a 44.8% probability of another hike in October.

Ackman is scheduled to appear on Wood’s podcast, ‘In The Know,’ on Friday.

Price Action: On Tuesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.26% higher at $766.20 and gained 0.21% in early pre-market trading on Wednesday. The Invesco QQQ Trust ETF (NASDAQ:QQQ), closed 0.19% higher at $737.93 and rose 0.09% in pre-market.

Benzinga Edge rankings indicate that the Invesco QQQ Trust ETF has a Momentum score in the 81st percentile and a positive price trend across the short, medium, and long term.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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