In 2022, the financial markets were gripped by concerns over soaring inflation and the potential actions the Federal Reserve would need to take in order to curb it. In response to this predicament, the Fed implemented one of the most aggressive rate hikes since the 1980s.
Fortunately, it seems that the Fed's measures have been effective, and inflation appears to be subsiding. Key indicators of inflation, such as the Consumer Price Index (CPI) and Personal Consumption Expenditure Index (PCE), have topped out and returned to levels seen in 2021. Additionally, the Producer Price Index (PPI), which tends to lead the other two inflation indices, has reached its lowest growth rate in over two years.
Source: Bloomberg, Redwood. Data as of 4/21/2023. Date Range from 4/21/2017 – 3/31/2023.
Even with the recent progress, inflation remains above the long-term target of 2% set by the Federal Reserve. As a result, the Fed may need to hold interest rates at elevated levels for longer or even raise them further, increasing the risk of an economic downturn.
The balancing act the Fed has to continue to perform, i.e. combating inflation without triggering a deep recession, will keep markets on edge. To manage this uncertainty, investors should have a disciplined investment process that keeps them on track to achieve their financial goals. Our investment strategies prioritize risk management, utilizing rigorous quantitative rules to help investors stay within their drawdown targets.
- Our strategies are built through continuous, innovative, quantitative research.
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Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. Objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.