Stay Ahead Of The Curve: What To Expect From FOMC Minutes Release
Minutes from the latest FOMC meeting will be released on Wednesday, opening a window into the conversation that led Fed officials to decide on a 0.25% hike on the federal funds rate earlier this month.
The Federal Open Market Committee is the body in charge of deciding the federal funds rate, which has a direct impact on interest rates and is the Fed's main tool for correcting the course of inflation.
In their last meeting, the FOMC's twelve members decided to dial down the rate of hikes for the second time in a row, to 0.25% after a previous hike of 0.5% which was preceded by four consecutive hikes of 0.75%. The current rate stands between 4.5% and 4.75%.
While investors are hoping for the Fed to start dialing back on the federal funds rate, economists forecast further hikes of 0.25%.
The S&P 500 opened Tuesday was falling by almost 2% after the holiday weekend, as investors anticipate the minutes from the meeting might lend a glimpse into future Fed policy. I should be noted that the market reacted positively to the last release of FOMC minutes, climbing 4.5% in the ten days following the release.
The Fed is walking a tightrope as it tries to limit economic growth to bring down inflation while not falling into a recession. In the latest minutes release —published in January, with details from December's meeting— Fed officials agreed that a less hawkish stance on hikes was needed but expressed concern that the financial markets might interpret this as a sign that the agency's commitment to bring down inflation is flagging.
Officials expressed the need to navigate a sensible course of hikes without generating devastating effects on the job market that could end up hurting the most vulnerable sectors of society through extreme levels of unemployment.
What To Look For As The Fed Publishes The FOMC Minutes
Investors will be keeping an eye on companies affected by shifts in interest rates (often called interest-sensitive stocks), as the Fed publishes the minutes at 2p.m. ET on Wednesday.
The banking sector is first in line to be impacted by changes in the federal funds rate, yet banking ETFs have shown signs of strength after the most recent Fed catalysts. On Feb. 1, when Fed Chair Jerome Powell announced the latest hike in interest rates, Invesco KBW Regional Banking ETF (NASDAQ:KBWR) jumped 6.8% between the two days leading up to the announcement and the day after. The same ETF dropped slightly after the minutes from the previous meeting went live in early January, but was already up 2.4% two days later.
Other banking ETFs, including First Trust NASDAQ ABA Community Bank Index Fund (NASDAQ:QABA) and SPDR S&P Regional Banking ETF (NYSE:KRE) showed the same patterns.
Mortgage stocks, including Rocket Companies (NYSE:RKT) and UWM Holdings Corp (NYSE:UWMC) were not impacted by the last minutes’ release, but have been trending downward since Feb. 1, as the Fed continued to hike interest rates.
The same goes for some auto dealers like Vroom (NASDAQ:VRM), which started a downward course after the latest Fed decision was announced but was immune to the FOMC minutes, yet this behavior was not ubiquitous across the sector.
Photo: federalreserve.gov