The Fed now has the stage in the stock market today following a lighter-than-expected March CPI report on Wednesday. Whether you’re trading penny stocks or high-priced blue chip stocks, knowing how to use data is a great way to capitalize on the recent stock market volatility.

In March, inflation experienced a slowdown as the Federal Reserve’s interest rate hikes appeared to have begun to take effect. The consumer price index (CPI), a commonly used gauge of the prices of goods and services in the U.S. economy, saw a 0.1% increase for the month. That is compared to the market’s prediction of 0.2%. The year-over-year increase was 5%, also slightly below the anticipated 5.1%.

When excluding food and energy, the core CPI rose by 0.4% month-over-month and 5.6% annually, both in line with expectations. This has brought more optimism back to stocks. However, the early exuberance in the stock market today has subsided. Now, investors are gearing up for the next round of Fed meeting minutes from last month.

Certainly, the March inflation report will likely be weighed more heavily against the prospects of a May interest rate hike. It’s also worth accounting for the recent jobs report and unemployment rate data.

Nevertheless, a lot has changed since the Fed’s last meeting with investors, effectively putting the banking crisis in the rearview as earnings season begins this week.

What Happened At The March Fed Meeting?

Here’s a recap of the top takeaways from the FOMC meeting in March:

  • 25 Basis Point rate hike: The Committee raised the target range for the federal funds rate to 4-3/4 to 5%.
  • Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.
  • The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run
  • The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.
  • In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities, as described in its previously announced plans.
  • The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. 
  • In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
  • Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
  • Reinvest into agency mortgage-backed securities (MBS) the number of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.

Commentary From Fed Chair Powell

The Fed’s use of the term “firming” to explain anticipated policy measures was something new that caught attention. Chairman Jerome Powell also stayed true to his stance on policy decisions. They will be data-dependent, and inflation persists at levels that are “well above” the 2% goal. Furthermore, Powell explained that the “Fed expects slow growth and supply/demand rebalance with inflation moving down. Participants do not see rate cuts this year.”

The FOMC’s statement also reassured the public about the financial system. This followed the collapse of Silicon Valley Bank and the bank runs that ensued shortly after. “The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.”

Frequently Asked Questions (FAQ) About The Federal Open Market Committee Meeting Minutes

Question: When Are The Fed Minutes Released?

Answer: Fed Meeting Minutes are released three weeks after each FOMC meeting.

Question: What Are The Federal Open Market Committee Meeting Minutes?

Answer: According to the Federal Open Market Committee, the Fed meeting minutes “provide a timely summary of the discussion during the meeting and the decisions taken at the meeting. The minutes describe the views of policymakers and explain the reasons for the Committee’s findings.

The minutes can help the public interpret economic and financial developments and understand the Committee’s decisions. As an official record of the meeting, the minutes identify all attendees and provide a complete record of policy actions taken, including the votes by individual members on each policy action.”

Fed’s Daly: We Had Good News Today

Ahead of the FOMC meeting minutes and after the latest CPI inflation report, San Francisco Fed President Mary Daly, gave comments on Wednesday that brought a bit more clarity on what the Fed might be thinking regarding policy measures in light of the new inflation data.

“We had some good news today on the CPI. Headline release showed that it’s going down, it’s going in the right direction, but it’s still elevated. It’s not consistent with price stability. And I’m going to be looking specifically in the CPI and in our other measures to see if core services are coming down and really core services minus housing.”

Daly also gave comments on her outlook on the labor market, saying, “There are a number of signs that the labor market is starting to cool, but it remains extremely tight and is likely to come back into balance only gradually.”

Daly thinks there are good reasons to expect policy to tighten more to combat inflation. She explained that there are also “good reasons to think that the economy may continue to slow, even without additional policy adjustments.”

Fed Meeting Minutes for March 2023: Is A Rate Pause In The Cards?

On Developments In The Banking Sector

“Before turning to other agenda items, the Chair asked the Vice Chair for Supervision to provide an update on recent developments in the banking sector. The Vice Chair for Supervision described the developments, including those at Silicon Valley Bank, Signature Bank, and Credit Suisse. He also described actions taken by the Federal Reserve and other regulatory agencies in response. He noted that the U.S. banking system is sound and resilient. He also noted that he will be leading a review of the supervision and regulation of Silicon Valley Bank, and that the Federal Reserve System will apply what is learned from the review to strengthen its supervisory and regulatory practices as appropriate.”

On Economic Situation

“Recent indicators of nominal wage growth had slowed but continued to be elevated. In February, the 3-month change in average hourly earnings for all employees was at an annual rate of 3.6 percent, slower than its 12-month pace of 4.6 percent. Over the four quarters of 2022, total labor compensation per hour in the business sector—as measured by the Productivity and Costs data—increased 4.5 percent, below its pace in the previous year…core inflation has shown little sign of easing in most foreign economies amid tight labor markets. In response, many foreign central banks continued their monetary policy tightening, al­though some have either paused or indicated that a pause soon was possible, citing the importance of assessing the cumulative effects of past policy rate increases.”

On Economic Outlook

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years. Real GDP growth in 2024 was projected to remain below the staff’s estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential.”

“If the effects of the recent developments in the banking sector on macroeconomic conditions were to abate quickly, then the risks around the baseline would be tilted to the upside for both economic activity and inflation. If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for both economic activity and inflation, particularly because historical recessions related to financial market problems tend to be more severe and persistent than average recessions.”

“In their discussion of the household sector, participants noted that incoming data on real consumer expenditures showed a pickup in spending in January and February. They attributed the pickup to strong job gains, rising real disposable income, and households continuing to run down excess savings accumulated during the pandemic.”

“With inflation still well above the Committee’s longer-run goal of 2 percent, participants agreed that inflation was unacceptably high…participants concurred that inflation remained well above the Committee’s longer-run goal of 2 percent and that the recent data on inflation provided few signs that inflation pressures were abating at a pace sufficient to return inflation to 2 percent over time.”

“However, participants assessed that labor demand continued to substantially exceed labor supply, and several participants pointed out that wage growth was still well above the rates that would be consistent over the longer run with the 2 percent inflation objective, given current estimates of trend productivity growth.”

On Rate Hikes

Some participants noted that given persistently high inflation and the strength of the recent economic data, they would have considered a 50 basis point increase in the target range to have been appropriate at this meeting in the absence of the recent developments in the banking sector. However, due to the potential for banking-sector developments to tighten financial conditions and to weigh on economic activity and inflation, they judged it prudent to increase the target range by a smaller increment at this meeting.”

“In determining the extent of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

All members voted in favor on these actions and the full minutes can be reviewed directly on the Federal Reserve’s website.

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