Weekly Client Letter – June 24, 2024

The Federal Reserve’s dual mandate is to promote maximum employment and stable prices (control inflation). They pursue these goals through changes in the Fed Funds Rate. In 2022, they began raising rates to combat inflation, which has been decreasing back toward their target of 2%.

While the Fed is cautious to avoid cutting rates too soon and risking a resurgence of inflation, market participants consider a Fed Funds rate higher than the inflation rate (as seen in the chart below) to be highly restrictive.

So, rate cuts to support the maximum employment part of the Fed mandate are expected by the market participants. While the future of the market is unpredictable, we believe our disciplined investment process can guide investors through changing market conditions.

Inflation Leads, Interest Rates Follow

Weekly Client Letter - June 24, 2024
Source: Bloomberg, Redwood. Data as of 6/21/2024. Date range from 6/30/2019 – 5/31/2024.
  • We believe the preservation of capital is key to consistent, long-term investment success.
  • Our investment approach is grounded in economic theory and backed by quantitative analysis.
  • Managing drawdown risk is a pillar from which we build our portfolios.

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