co-authored by Daniel Rangel

The Federal Reserve will release its January meeting minutes at 2 p.m. this afternoon (2/21), and investors are (im)patiently waiting for information on the state of rate hikes and inflation. Every month, investors comb the minutes in search for minor irregularities, variation in vocabulary, or any other clues that may hint at changes in Fed policy or its economic outlook.

In its January meeting, the Federal Reserve places greater emphasis on its outlook than it does in its December meeting. By then, the first month of economic data for the year has been reported, giving the Federal Reserve a more proper basis for forecasting the year’s outlook. This month’s meeting is also the first for Jerome Powell in his new role as Federal Reserve chair. Investors will be looking for possible changes in Fed policy due to the change in leadership—specifically regarding inflation, asset valuations, interest rates, and fiscal policy.

Inflation

According to The Wall Street Journal, Fed officials in both December and January took a “wait-and-see attitude” about inflation and its impact from tax cuts, and the Fed may continue with this stance moving forward. Investors, however, are worried about inflation as the U.S. economy has witnessed very slow inflation growth for years and the tepid inflationary environment may be drawing near an end. The new year brought about more growth and even higher asset prices, both of strong concern for inflation.

Asset Valuations

According to Bloomberg, 10-year Treasury yields are the highest they have been since 2014, complemented by a rise in stock prices. Only recently did the market experience volatility spikes. The Fed is cautious about reigning in the economy so as to preserve stock market gains; however, the recent sell-off in equities may cause the central bank to revise its approach. At the very least, investors will be looking for the Fed to address the recent movements and to gain some insight into the Fed’s view on the markets under Powell.

Interest Rates

As stated in its December minutes, the Federal Reserve is anticipating three federal-funds rate hikes in 2018. Investors will be seeking further guidance on rates but are already expecting an increase to be announced at the Fed’s March meeting. The Wall Street Journal reports that if inflation is higher than expected, however, the Fed may look to raise rates more than three times this year.

Fiscal Policy

The Federal Reserve will be addressing changes to its earlier economic forecasts from December, which were announced before Congress passed the new tax bill. Says The Wall Street Journal, “The enacted bill was both larger and more likely to boost the economy sooner than … projections in December.” Additional fiscal policy discussion will include increased federal spending agreements as well.

Sectors: Among the Sector Benchmark ETFs, the average momentum score increased from -14.55 to -2.55. None of the sectors were down for the week. The Financials was up by 16 points. Defensive and cyclical sectors also increased. Sensitive sectors as a whole increased by 56 points. The number of sectors in the red decreased from 8 to 5. Real Estate remains at the bottom. The overall increase in sectors seems to indicate an appetite for risk.

Factors: Among the Factor Benchmark ETFs, the average factor score increased from -7.64 to 6.27 this week. All of the factors increased for the week. Growth climbed the most, up by 19. Dividend Growth and Yield are in the red for the week and are also at the bottom.

Global: Global Benchmark ETF momentum scores increased for the week. The average score by country jumped from -7.27 to 7. Developing countries were at the top of the list. China increased the most, up 26 points. Latin America remains at the top, while developed counties remained at the bottom. Canada is the only country in the red.

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