Here’s What Could Happen Regardless Of The Fed’s Decision
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The first move the market makes after a Fed meeting is usually not about policy at all—it’s about volatility. Leading into an event like the FOMC decision, implied volatility rises as traders hedge against uncertainty. This is reflected in both the VIX and, more acutely, the VIX one day, which captures short-term event-driven volatility.
When the Fed releases its policy decision at 2 PM, implied volatility almost always collapses. That drop, known as a volatility crush, acts as a mechanical boost to the S&P 500, regardless of whether the policy shift is interpreted as hawkish or dovish. It’s not unusual to see stocks surge right after the announcement and during Powell’s press conference, even before investors have fully considered the policy implications.
This exact pattern played out around the recent CPI release, where hedging pushed volatility higher before the data, only for implied volatility to fall sharply after, sending equities higher before they drifted sideways. The same setup often unfolds around Fed days: volatility spikes going in, then collapses once the uncertainty is resolved.
The higher implied volatility is before the meeting, the more dramatic the post-event rally tends to be. Conversely, when volatility is already subdued heading into the announcement, the reaction is often far less pronounced. This is why watching volatility positioning—not just the headlines—can provide a more reliable signal of the market’s first move after the Fed.
Video Length: 00:10:57
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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