Deep Dive
The Case for Rapid Real GDP Acceleration
Wood opens by drawing parallels between today's technology revolution and the Industrial Revolution, which she says increased real GDP growth five-fold from roughly 0.6% to 3% over 400 years. She presents a long-term chart spanning back to 100,000 BC showing that technology revolutions reliably spike growth rates. The key difference now is we have five major innovation platforms evolving simultaneously—AI as the biggest catalyst, plus robotics, energy storage, blockchain, and multiomics sequencing—compared to three during the Industrial Revolution (railroads, electricity, internal combustion). Wood argues this creates conditions for real GDP to at least double from the consensus 3% to 6%, and possibly reach 15% if Elon Musk's projections materialize. The IMF is still forecasting 3.1%, which Wood says is "more than two times the consensus expectation" but still conservative given the productivity gains visible in AI. She emphasizes this matters enormously for understanding inflation and interest rate behavior going forward.
Why Inflation Will Surprise to the Downside
Wood presents three measures of inflation to argue the real picture is much softer than headline PCE's 3.7%. The Dallas Fed trimmed mean PCE sits at 2.3%, and a private inflation gauge shows 2.4% on headline and 1.3% on core—all much closer to the Fed's 2% target. She believes Powell's focus has shifted to these core measures despite Jackson Hole rhetoric around headline PCE, noting he commissioned a task force to examine multiple inflation measures. The primary mechanism for disinflation is technology cost collapse: genomic sequencing fell from $2.7 billion per person in 2003 to under $100 today and heading to $10, while AI inference costs drop 99.99% per year. These deflationary forces are spreading through healthcare and every industry. Wood notes there's nothing like productivity gains to combat inflation, making the combination of accelerating real growth and falling tech costs a recipe for surprising disinflation.
Oil Supply Flood Will Crush Energy Inflation
Wood walks through a pivotal shift in global oil markets. Abu Dhabi exited OPEC in May and has since increased production 78% to over 4 million barrels per day—a record. Venezuela is threatening to leave OPEC, likely encouraged by Trump. US production sits at 13.6 million barrels daily, with over 6 million exported, compared to nearly nothing in 2015. Despite two active wars (Russia-Ukraine and Iran-Israel), oil failed to crack the 2008 peak of $147, a key signal of demand destruction. Wood believes Abu Dhabi and Saudi Arabia have concluded the oil price has peaked because transportation is moving onto the electrical grid, which runs on natural gas, nuclear, hydro, solar, and wind—not oil. The strategic play for both producers is to extract reserves aggressively before prices collapse. Wood would not be surprised to see oil revert to $30, the 50-year average, as supply floods the market. This dynamic alone would drive inflation lower and relieve pressure on Treasury yields.
Why the Yield Curve Inversion Doesn't Signal Recession
Wood presents a novel historical framework: before the Fed's creation in 1913, the yield curve was inverted more than 60% of the time, with an average inversion of roughly 100 basis points. After 1913, positively sloped curves became the norm except before recessions. She argues we may be reverting to pre-Depression dynamics because, like the Industrial Revolution period, we're in a technology revolution with deflationary undercurrents. The most recent inversion (2023-2024) failed to produce a broad recession—manufacturing, housing, and small businesses suffered, but the overall economy survived. This suggests the inverted curve's recession-prediction power is weaker in technology-driven periods. If real growth accelerates to 7%+ while inflation turns negative, short-term rates would rise (reflecting growth) while long rates would fall (reflecting disinflation), naturally inverting the curve without economic collapse. Wood sees this as "the market working" and views it as validation that the technology revolution's deflationary power is already being priced in.
Capital Spending Breakout Mirrors the 1990s Internet Boom
Wood highlights a 25-year consolidation in non-defense capital goods spending that has just broken out post-COVID, with growth rates approaching 1990s Internet boom levels. She marks the ChatGPT moment as the inflection point and notes we're only in the first few years of what she expects will be sustained years of capex. Corporations are not just building for hope—unlike the railroads where 200 companies bankrupted chasing speculative opportunities, AI companies are already generating enormous returns on invested capital. She cites Anthropic paying $50 billion per gigawatt for data center capacity, with equivalent infrastructure costing Elon's team $20-25 million to build, implying immediate returns. Salesforce rebounded sharply after demonstrating how Agentic AI and Slack integration could unlock value. While Wood acknowledges there will be "creative destruction" across sectors—particularly transportation (EVs, robotaxis), software SaaS, and others—the capital spending wave is real and durable. The long duration of 1990s spending growth suggests this cycle could persist for years.