What to expect from the Federal Reserve’s meeting minutes

Today, the Federal Reserve will release the minutes of its latest meeting. The Fed will address the highly-anticipated question of its colossal $4.5 trillion balance sheet and whether a December rate hike is likely. The minutes will leave investors to digest its two-part plan for monetary policy.

Scheduled 8 times per annum and three weeks after the Federal Fund’s rate announcement, the minutes usually have a major impact on markets as investors mull over the scope and pace at which the Fed anticipate rate hikes.

The minutes of the Federal Reserve’s latest meeting will likely focus on  a further tightening of monetary policy. In a two-part plan, the Fed will begin by raising the Federal Fund’s overnight rate and will start to reduce its reservoir of bond and mortgage-backed securities later this year. The second part of the strategy can be seen as a kind of substitute for the former.

The Fed have noted that teasing the markets with ambiguous proposals should be avoided. Instead a phased-out plan of reinvesting its holdings is more favourable and poses less risk to tamper with market volatility.

The Federal Reserve’s board members will come together in December, where it is widely expected that the central bank will raise the cost of borrowing.

Again, policymakers usually drop hints as to what the decision will be before the announcement, to ease investors into the transition. Therefore, rate decisions are already priced into the market months in advance.

The interest rate decision itself is actually overshadowed by the statement made by the board members, which focuses on predictions for future rate increases.

This announcement will influence the US dollar, one of the world’s most important currencies. It will also influence the equity market. Higher interest rates are positive for assets like the dollar and financial stocks, while broadly bearish for most other stocks.

Although, stocks have been particularly robust in the face of heightened risk in the market. Given that investors anticipate a rate hike and tensions continue to brew in North Korea, stocks have had a muted reaction, trading near record highs.