Obsessing over Federal Reserve rate decisions might be a waste of time for your investments according to new research. Historical data since 1980 shows that stock market returns after Fed rate changes—whether cuts or hikes—aren’t significantly different from average market performance.
The research examined various scenarios: fourth cuts in a rate-cutting cycle, final cuts, all cuts in a cycle, and first rate hikes after cutting cycles. None of these situations produced meaningful return differences at the 95% confidence level statisticians typically use. Even the seemingly better performance after final rate cuts was skewed by exceptional returns following the March 2020 pandemic cut.
This doesn’t mean interest rates are irrelevant—it actually shows how efficiently markets anticipate Fed decisions. By the time the Fed announces a rate change, the market has already adjusted to it. To profit from Fed announcements, you’d need to predict their moves more accurately than Wall Street professionals already do.