Survey of Fed Effects on Stock Market Returns

How and how much does the Federal Reserve Open Market Committee (FOMC) affect the overall stock market? In their April 2025 paper entitled “The Effect of the Federal Reserve on the Stock Market: Magnitudes, Channels and Shocks”, Benjamin Knox and Annette Vissing-Jorgensen survey studies of Federal Reserve effects on the stock market, focusing on three items:

1. FOMC monetary policy surprises – effects of short rate surprises on stock market return in a half-hour window around FOMC announcements (10 minutes before to 20 minutes after).
2. Pre-FOMC announcement drift – stock market return in the hours leading up to scheduled FOMC announcements.
3. FOMC cycle – stock market return patterns between FOMC meetings.

They discuss directions/magnitudes of impacts, types of shocks (pure monetary policy or sentiment reactions to information about economic outlook) and explanations of impacts. Based on the body of relevant research, they conclude that: (more…)