Stock markets reacted favorably to the release of FOMC minutes yesterday, as Fed doves appeared to be in power, and markets anticipated that the Fed will adhere to its four rises this year.
Investors were anxious that the Fed would become more aggressive in order to contain the greatest inflation seen in over 40 years prior to the release of the FOMC minutes.
Remarks by St. Louis Fed President James Bullard strengthened this idea, pushing markets to price in seven 0.25-percentage-point interest rate increases in 2022. The FOMC minutes, on the other hand, demonstrated a more dovish posture, which served to alleviate investor fears and enhance investor mood.
In addition to interest rate discussions, the FOMC minutes revealed how the Fed intended to shrink its roughly $9 trillion balance sheet exposure. The Fed's balance sheet is mostly made up of bonds purchased by the American central bank in order to inject liquidity into markets and boost the American economy.
Investors should also keep in mind that the reduction of bond purchases is set to conclude in March. However, several FOMC members believe that the Fed should cease its bond-buying program sooner to show markets that it was serious about managing inflation.
Moving forward, the confrontation between Russia and Ukraine may exacerbate stock market volatility. There were indications earlier this week that Russia was pulling its troops from near Ukraine's borders. However, no troops have been instructed to leave the region, according to Washington. Instead, 7,000 troops have been added to the 150,000 currently on the ground. Russia's actions, according to officials in Washington, did not reflect the country's position that it was seeking a diplomatic settlement.