The Federal Reserve released its September meeting minutes Wednesday afternoon, signaling that the central bank plans to continue its rate-hiking campaign in effort to slow rampant inflation.

In the Fed's press release opening lines, the central bank highlighted on the current state and sentiment of the economy: "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures."

The committee pointed to Russia's war against Ukraine, rising labor tensions, and supply chain disruptions as the major culprits of rising inflation.

As anticipated, markets responded swiftly, to the Fed's plans of pursuing a stalwart tightening monetary policy to bring down inflation from its 40-year highs. The Dow Jones Industrial Average (DIA  ), S&P 500 (SPY  ), and Nasdaq (QQQ  ) all dipped on release of the meeting minutes. Prior to release of the minutes, market pricing suggested that investors expected the Fed to raise interest rates 3/4th of a point during their next meeting, scheduled for Nov. 1-2.

Fed officials have so far raised interest rates by 3/4ths of a percentage point for the third straight time and markets anticipate this will continue. Markets will most likely continue to price in expected Fed rate hikes until they see a drop in the inflation rate, at which point they will have conviction that rate hikes will slow or end.

The producer price index (PPI) rose 8.5% YoY in September which was above the 8.4% expectation, indicating that business costs are continuing to rise which is a bad sign for the consumer price index (CPI). Producers pass on higher costs to customers in the form of higher price tags, which aggravates inflationary pressure.

We can see this in September's inflation report which showed that the CPI increased 0.4%, despite the Fed's rate hike, providing strong indication that more rate hikes are to come. This was driven by increased costs for shelter, medical care, health insurance, new vehicles, home furnishings and education.

Many investors blame interest rate hikes on market weakness, for fear that aggressive hikes will dip the economy into a recession. We can see this in the so-called "yield curve inversion" - this occurs when shorter-term government bonds have higher yields than long-term bonds. Investors are bearish on the long-term prospects of the economy and are therefore not willing to take longer-term risk ahead of a downturn and instead stick with short-term bonds. Higher bond yields also create competition for funds that invest in the stock market because investors are now able to get greater return with bonds vs. the stock market.

Bond yield and prices move in opposite direction which means that higher rates cause the bond value to drop. Interest rates and bond prices also move in opposite direction which means that higher rates similarly cause the bond price to drop.

Here is an illustrative example. Most bonds pay a fixed interest rate - say for example a bond pays 2% interest and the Fed just increased interest rates to 4%. This bond now becomes less attractive on the secondary market because newly issued bonds will pay this higher interest. Therefore, the price of this bond will fall.

Some market experts attribute higher bond yields to the Fed rate hikes, which is causing the inverted yield curve and potentially dipping us into a recession. Now is perhaps as good a time as ever to revisit one's investment portfolio diversification and re-allocate if necessary.

Some say that the Fed is not doing enough while others say the Fed is overstepping. The Federal Reserve is not the only central bank hiking interest rates. Central banks around the world are relying on the same strategy.

Greg Mankiw, an economist at Harvard University and former chair of the Council of Economic Advisers during the George W. Bush administration noted that "Steering the economy is like steering a large ship. It moves very slowly, and once you return the helm to normal, it keeps's easy for a novice to overreact, and then if you turn too much in the other direction, it can be a source of instability rather than stability."