The Federal Reserve’s influence on stock returns has been quantified in a new research paper by economists Benjamin Knox and Annette Vissing‑Jorgensen. The study, published in the Federal Reserve Economic Discussion Series, examines how monetary policy surprises around Federal Open Market Committee (FOMC) announcements, the pre‑announcement drift, and the FOMC cycle affect average equity returns. Findings show that the Fed’s actions have a large effect on stock prices over multi‑decade periods. The impact operates mainly through changes to yields and equity premia, while evidence for direct effects on cash flows is weaker. The research also indicates that news about the Fed’s reaction function matters more than general information about its economic outlook, and that communication outside announcement windows plays an important role.
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