The Fed's Next Move Might Be Almost Certain—But Here's How the Post-Meeting Comments Can Move Markets

• Press conferences are the most influential source of policy surprises, more so than official statements or meeting minutes, with strong effects on Treasury yields and risk asset prices
• Traders are pricing in less than a 3% chance of a surprise rate cut at Wednesday's meeting, meaning any market movement will likely come from Powell's 2:30 PM press conference comments
• Hawkish surprises (indicating higher future rates) typically lower inflation expectations and stock prices, while dovish surprises (lower future rates) have the opposite effect

Federal Reserve Press Conference Impact on Markets: Key Research Findings

Key Research Findings

New research from the Federal Reserve Bank of San Francisco reveals that Fed Chair Jerome Powell's press conferences are the most influential source of market surprises, significantly outweighing official policy statements and FOMC meeting minutes. The study, led by Miguel Acosta from the University of Wisconsin, Madison, tracked "monetary policy surprises" and their impact on financial markets.

Market Implications

The research shows Treasury yields and stock prices are most affected by press conference statements, particularly bonds tied to inflation expectations. When the Fed signals a "hawkish" stance (keeping rates higher), inflation expectations fall and stock prices decline due to anticipated higher borrowing costs impacting corporate profits. "Dovish" surprises (indicating lower rates) produce opposite effects.

Upcoming Fed Meeting

The Federal Open Market Committee meets Wednesday to set the benchmark interest rate. As of Monday, traders priced in less than 3% probability of a rate cut. The key moment for potential market-moving surprises is expected at 2:30 p.m. Eastern Time when Powell conducts his post-meeting press conference.

Methodology

Researchers created a Monetary Policy Event Study Database to quantify and track market responses to various forms of Fed communication over time, including Treasury bond yields reflecting future inflation expectations.

Investment Takeaway

For investors seeking clues about inflation and interest rate direction, the research confirms that Fed press conferences provide the most actionable information compared to other communication channels. The study emphasizes that "disregarding information in the press conferences risks overlooking an important source of information" for market participants.