In the January Federal Open Market Committee meeting, the Federal Reserve moved closer towards its first rate hike in March.

Going into the meeting, there was a wide variety of opinions about what the Fed what actually do. Those on the hawkish side thought that the Feds may surprise the markets by an early rate hike or starting its balance sheet runoff. And many on the dovish side thought that the Fed may look to delay its tightening due to recent market volatility.

However, the FOMC decision was seen as slightly more hawkish than expected with Chair Jerome Powell's focus that the economy remained quite stable and would be able to handle higher rates. There was also more discussion about inflationary risks and about how a balance sheet runoff would look like.

The FOMC decision also led to yields rising with the 2-year yield reaching 1.18% while it was around 1.02% prior to the meeting. In terms of the stock market, the incredible volatility of the last few weeks continued with the market at one point 2% higher before closing in the red.

The main takeaway from the meeting was the Fed's signal that a rate hike was imminent. Additionally, the Fed signalled it could take a more aggressive approach as well. According to Powell: "I think there's quite a bit of room to raise interest rates without threatening the labor market."

The Fed's pivot has been telegraphed since mid-November. Since then, inflation data has continued to come in strong in defiance of the Fed's original stance that it would be "transitory". The latest CPI was the most in 40 years, and there's reason to believe that inflation could remain elevated with another wave of supply chain disruptions and ports getting backed up even more.

Notably, there was no dissent. The committee also continued with its taper with only $30 billion of purchases and the program expected to end in March. Another vector for tightening is that the Fed can reduce its balance sheet which has reached $9 trillion. Not many details were revealed although Powell acknowledged discussions would be ongoing.

In a sense, it would be quantitative tightening (QT) and would reduce inflation with less adverse effects on the economy. The committee did release a statement outlining "principles for reducing the size of the balance sheet."

After the Fed meeting, rate hike expectations went from 4 to 5. It seems to have spooked equity investors as stocks gave up their gains. One concern is that Q1 economic data might look weak on a year over year basis given that stimulus checks were being sent out this time last year which might ignite concerns that the Fed is tightening into a slowing economy.