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7 Big Takeaways From the Fed’s Last FOMC Meeting Minutes

Today, the Federal Reserve released its minutes from its last Federal Open Market Committee (FOMC) meeting on Jan. 25-26. Immediately after the release, both the S&P 500 and Nasdaq-100 accelerated higher, with both indices closing near an…

Today, the Federal Reserve released its minutes from its last Federal Open Market Committee (FOMC) meeting on Jan. 25-26. Immediately after the release, both the S&P 500 and Nasdaq-100 accelerated higher, with both indices closing near an intraday high. The minutes show that the Fed discussed interest rate hikes, tightening monetary policy, and a balance sheet reduction. As of now, the Fed is indicating that it could hike interest rates as soon as the next FOMC meeting on March 15-16.

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Another hot topic that officials discussed was the reduction of the near-$9 trillion federal balance sheet. The balance sheet largely consists of Treasury bonds that were purchased in an attempt to drive down rates and stimulate growth. CNBC reports that to do this, many Fed officials want to allow proceeds from maturing bonds to roll off. Other Fed officials have suggested selling mortgage-backed securities in an attempt to only hold Treasury bonds on the balance sheet.

Before reducing its balance sheet, many investors expect the Fed to officially wind down its asset purchase program. During the January meeting, the Fed also outlined a plan in which the bank will buy more Treasury bonds and mortgage-backed securities over the next month.

So, what else should investors know about the minutes from the FOMC meeting? Let’s jump right in.

7 Big Takeaways From the FOMC Minutes

  • Since the January meeting, Consumer Price Index (CPI) readings have shown that prices have risen at the fastest pace in 40 years. The term “inflation” appeared 73 times in the FOMC minutes.
  • The widely accepted annual inflation rate is 2%. Fed officials have noted that a tighter monetary policy must be enacted in order to bring down current rates.
  • Fed officials also stated that elevated asset prices (like those seen in crypto) could possibly deter financial stability.
  • In addition, the minutes noted that “a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the Committee’s expectation.”
  • Fed Chair Jerome Powell has not ruled out the possibility of a rate hike at every FOMC meeting this year. Additionally, he has not ruled out a 50 basis points rate increase during the next meeting.
  • The federal interest rate has remained unchanged since March 2020.
  • Unprofitable companies will be hurt most from an increase in interest rates. This is due to future cash flows being discounted at a higher rate, which would decrease the present value of a company.
  • On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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