FOMC Minutes: What To Look For When Details From The Latest Fed Meeting Drop Wednesday – Invesco KBW Regional Banking ETF (NASDAQ:KBWR), SPDR S&P Regional Banking ETF (ARCA:KRE)

Minutes from the latest FOMC meeting will be released on Wednesday and offer a glimpse into the conversation that led Fed officials to approve a 0.25% hike in the federal funds rate earlier this month.

The Fed’s interest rate path: The Federal Committee of the Free Market is the body responsible for setting the Federal Funds Rate, which directly affects interest rates and is the Fed’s primary tool for correcting inflation trajectories.

At their most recent meeting, the 12 members of the FOMC decided to cut rate hikes to 0.25% for the second consecutive month, after a previous 0.5% hike that was preceded by four consecutive 0.75% hikes. The current interest rate is between 4.5% and 4.75%.

As investors hope the Fed will start cutting the federal funds rate, economists are forecasting further hikes of 0.25%.

The S&P 500 fell almost 2% on Tuesday after the bank holiday weekend as investors expect meeting minutes could provide insight into future Fed policy. It should be noted that the market reacted positively to the latest FOMC Minutes release, surging 4.5% in the 10 days following the release.

The inflationary background: The Fed walks a tightrope when trying to limit economic growth in order to lower inflation without sliding into a recession. In the most recent minutes release — released in January, with details from the December meeting — Fed officials agreed that a less hawkish stance on rate hikes was needed, but raised concerns that financial markets could interpret this as a sign that the Agency’s commitment to lowering inflation is waning.

Officials expressed the need to pursue a sensible path of increases without wreaking havoc on the labor market that could end up hurting the most vulnerable sectors of society with extreme unemployment.

Stocks to Watch When the Fed Releases FOMC Minutes: Investors will be keeping an eye on companies affected by rate shifts (often referred to as rate-sensitive stocks) as the Fed releases minutes Wednesday at 2:00 p.m. ET.

The banking sector will be the first to be affected by changes in the federal funds rate, but bank ETFs have shown signs of strength after the Fed’s recent catalysts. On February 1, as the Fed chairman Jerome Powell announced the latest rate hike, Invesco KBW Regional Banking ETF (NASDAQ: KBWR) is up 6.8% between the two days before the announcement and the day after. The same ETF fell slightly after the previous session’s minutes were released in early January, but was up 2.4% just two days later.

Other bank 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 unaffected by the last minute release but have been in the downtrend since February 1st as the Fed continues to raise interest rates.

The same goes for some car dealers like Vroom (NASDAQ:VRM), which went down following the announcement of the Fed’s latest decision but was immune to the FOMC minutes, but this behavior was not pervasive across the sector.

Photo: Federalreserve.gov.