The Market Impact of FOMC Meetings Part 2

[WITH CODE] Analyzing the impact of FOMC meetings on returns and volatility across asset classes

Reviewed and updated 22 July 2026

Hello!

In my prior post on FOMC meetings, we observed unique patterns in the U.S. equities and volatility markets. This post will explore the impact of FOMC meetings on U.S. treasury notes, U.S. treasury bonds, and U.S. interest rate volatility.

The results are striking, but not uniformly statistically significant: only MOVE remains significant after adjusting for the nine event-window tests.

Let’s get into it.

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Introduction

The purpose of Federal Open Market Committee meetings is to assess the current state of the economy and if it needs to alter monetary policy to meet its long-run goals of price stability and maximum employment.

These meetings directly impact U.S. interest rate markets, as the Fed can influence borrowing costs across the economy. This is done primarily through adjustments to the target federal funds rate and changes in the size and composition of the Federal Reserve’s balance sheet.

Last week, we saw that FOMC meetings had a clear (but not statistically significant at the 5% alpha level) relationship with U.S. equity markets and U.S. equity market volatility. A brief summary of the post is below.

FOMC Meetings and Market Behavior (Part 1 Summary)

In Part 1, I analyzed how U.S. equities (S&P 500) and implied volatility (VIX) behave around FOMC meetings using daily data. The findings reaffirm the outsized impact of these events on asset prices:

• S&P 500 returns are disproportionately high on FOMC announcement days, with better risk-adjusted performance than on non-FOMC days.

• The bulk of equity gains and volatility resolution is concentrated on the announcement day itself, not across the full two-day meeting window.

• On the comparable full-calendar Sharpe-ratio calculation, the FOMC-day and pre-FOMC timing strategies did not outperform buy-and-hold.

• VIX tends to decline on FOMC days, consistent with uncertainty resolution, but the announcement-day difference is not statistically significant at the 10% level in the comparable 201-date sample (p ≈ 0.12).

• Academic research, including Lucca & Moench (2015) and Ignatieva & Ohashi (2023), supports these observations and highlights the role of both announcement timing and Fed communications in shaping asset reactions.

Given that FOMC decisions impact the rates market more directly than equities, we might expect an even stronger relationship in this post.

However, one counterpoint is that the rates market is more efficient, given the heightened attention it receives during FOMC weeks. So, perhaps any predictable effects are arbitraged away.

As you’ll see, the historical sample leans toward the former explanation, although multiple comparisons and trading frictions make the strategy evidence less conclusive than the raw backtests suggest.

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U.S. Treasury Notes and FOMC Meetings

We begin by examining how intermediate-term Treasuries react to FOMC meetings, using data from mid-2002 through the end of 2024.

The methodology mirrors the first post. Each trading day is classified into one of four categories:

• FOMC Meeting Day

• Pre-FOMC (1 trading day before meeting)

• Post-FOMC (1 trading day after meeting)

• Non-FOMC (all other trading days)

We will be using the IEF ETF to replicate the performance of treasury notes, as “the iShares 7-10 Year Treasury Bond ETF (IEF) seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities between seven and ten years.”