Changing Patterns over the FOMC Cycle

Abstract: We document that in the period 2017 to 2022, the US stock market did not feature the same pattern of higher excess stock returns in even weeks following Federal Open Market Committee (FOMC) announcements as in the period 1994 to 2016. We show that timing of Board of Governors meetings and direction of Fed funds target rate movements affect US market returns in both periods, and connect changes in these factors to the distortion of the even-week return pattern. The behavior of uncertainty over the FOMC cycle, both for the 1994-2016 and the 2017- 2022 period, shows that drops in uncertainty neither are unique to the time of FOMC announcements nor persist in the post-sample period. Followingly, we argue that the resolution of a FOMC uncertainty risk premium is not what drives return- patterns around FOMC announcements.