Published on 1/6/22
The Fed meeting minutes from December were released yesterday (1/5/22) and it alluded to a tapering/balance sheet offloading policy as well as some rate hikes.
The Fed hints at raising rates possibly 4 times in 2022.
DEFINITIONS:
Offload Balance Sheet – The Fed starts selling the securities on its balance sheet. Pretty straight forward I know, but when dealing with financial definitions involving the government it is better to be safe than sorry.
Tapering – Winding down the Federal reserve’s bond buying stimulus program. Tapering doesn’t mean that the Fed will stop buying bonds it just will no longer be buying $120 Billion worth every month.
Quantitative Easing (QE)– The Fed buys securities on the open market it takes them off the market and leaves fewer for everyone else. This means competition is high for these remaining securities. This causes the price of these remaining securities to go up. This of course makes the yield (Interest on investment) go down. All of this causes more accessible hiring and home buying because interest rates are low. QE is basically central banks (The Fed) buying securities, so banks have more money to play with and the money supply in the economy goes up and interest rates go down.
THE JIST:
QE can cause inflation if the number of securities purchased is too much. This floods the market with more money than it may have needed, and inflation occurs. If you take QE and couple, it with massive spending bills by the government you are guaranteed inflation (hence the soaring gas prices that everyone is complaining about).
Too much QE + Big Gov Spending = High Inflation … And this is exactly what the Us is experiencing right now. Therefore, the Fed wants to start tapering its buying of securities, hike rates up higher and possibly offload its balance sheet by selling its held securities.
All this will of course make the stock market a bit jittery. Because if rates go up and less money is floating around in the market that means spending on consumer good s and investments like stock will go down.
I hope this short summary has given you better understanding of what is going on in the market right now. I have also included some resources below that can help you understand the current happenings.
Traveling Trader Video – Knowledgeable YouTuber who routinely makes Stock picks and evaluates the market. Not a Christian Stock picker, but he still offers great analysis.
CNBC Summary of the Fed Meeting – Most cut and dry summary of the meeting notes that were released yesterday (1/5/22)
The WS Journal Summary – Free article by the WSJ that has a decent explainer video of what is currently going on.
Despite the current Volatility, C3 still suggest holding for the long-term, diversifying your portfolio with quality assets and consulting our Lord Jesus Christ before making any major financial decisions.