FOMC & rate decisions: Understanding the volatility

When the Federal Reserve moves, liquidity shifts, risk appetite adjusts, and portfolios across the world feel it almost instantly.

At the center of it all sits the FOMC, a committee that meets a handful of times each year and decides whether rates get hiked, cut, or stay put.

For traders and investors, this is not background noise. It is the main event. Rate decisions ripple through equities, bonds, currencies, commodities, and crypto; often within seconds. One line in a policy statement or one carefully chosen word from the Fed Chair can reprice trillions.

The good news is that once you understand how the Fed thinks, the chaos starts to look a lot more like structure, and a lot less like random volatility.

And with Phantom, you can trade crypto, equities, and commodities in real time, turning every Fed move into a potential opportunity—keep reading to learn more!

What is the Federal Reserve?

The Federal Reserve (the Fed) is the central bank of the United States.

Its job is to manage the nation’s monetary policy and keep the economy stable. Congress has given the Fed a dual mandate: it must pursue maximum employment and stable prices (i.e. low inflation). In simple terms, the Fed tries to make sure people have jobs and that the money they earn holds its value.

To do this, the Fed uses tools like setting interest rates and controlling the money supply.

What is the FOMC?

“FOMC” stands for Federal Open Market Committee, the Fed’s chief monetary policy committee.

This group meets about eight times a year to set the Fed’s benchmark interest rate (the federal funds rate). At each meeting, the FOMC decides whether to raise, cut, or leave interest rates unchanged.

Every FOMC meeting ends with a rate decision, policy statement, and press conference.

FOMC impact on markets

FOMC interest rate decisions have a big impact on markets.

As a trader and investor, you will see immediate reactions in stocks, bonds, and other assets whenever the Fed announces a change (or no change) in rates.

• Rate hikes: When the Fed raises interest rates, it becomes more expensive to borrow money. Higher rates can slow down economic growth: consumers pay more on mortgages and credit cards, and companies face higher loan costs. This often leads to lower stock prices because businesses may earn less when people spend less. Broad indexes like the S&P 500 frequently fall on surprise rate hikes, since many companies’ future profits are expected to shrink (one exception: banks and other lenders can benefit from higher rates, since they can charge more for loans). Other asset classes react too: bond yields usually rise (and bond prices fall) when rates go up, and even the U.S. dollar can strengthen as investors seek higher interest returns. Overall, a series of Fed rate hikes is a sign of tightening financial conditions, which tends to make the stock market less attractive relative to other assets.
• Rate cuts: A rate cut does the opposite. When the Fed lowers rates, it’s trying to stimulate the economy: making loans, mortgages, and credit cards cheaper. Consumers are more likely to spend, and businesses can borrow more easily to expand. Lower rates are generally good for stocks. Investors and economists see rate cuts as a catalyst for growth and higher corporate profits. In fact, rate cuts can precede a rise in the S&P 500 and other indexes, sometimes significantly, because markets anticipate better earnings ahead. Another effect is that low interest rates may drive investors out of bonds (which become less attractive due to lower interest rates) and into riskier assets like stocks, causing stock prices to climb even further from the fresh demand. However, it’s worth noting that the context matters. If the Fed is cutting rates due to a serious economic problem, there can be bouts of market volatility or fear. But in many cases, a more accommodative monetary policy boosts confidence and lifts markets.
• Rates unchanged: If the FOMC leaves rates unchanged, the market reaction depends on expectations. Often, a “no change” decision is already anticipated by investors and traders, so it may cause little immediate movement in prices. In these cases, investors and traders focus on the forward guidance (what the Fed says about the economy and future rate moves). For example, if the Fed keeps rates steady as expected, but the statement hints that “rate cuts might come soon,” stocks could still rally on that dovish news. Conversely, an unexpected hold (when everyone expected a hike or cut) can surprise markets. Imagine investors and traders are expecting a rate cut to prop up a weakening economy, but the Fed doesn’t budge; stock prices might fall in disappointment. The key point is that with an unchanged rate, context is king. Markets will read between the lines of the Fed’s statement and comments to figure out what might happen next.

Historical FOMC market moves

To see these principles in action, here are three real-world examples from recent years showing how markets reacted to FOMC decisions:

• December 2018 (Rate hike & stock slump): The Fed raised rates by 0.25% in late 2018 and signaled more hikes to come. This tightening, during a time of market stress, made investors and traders uneasy. In fact, the S&P 500 fell sharply—about a 1.4% drop on the Fed decision day—and it continued to slide, contributing to one of the worst December stock performances in decades. This showed how a hawkish Fed (one inclined to raise rates) can send stocks tumbling.
• March 2020 (emergency rate cut & panic): On March 3, 2020, facing the COVID-19 outbreak, the Fed slashed interest rates by 50 basis points in an emergency move before its scheduled meeting. Normally, easier rates might cheer the market, but this surprise cut actually spooked investors and traders. It underscored the seriousness of the emerging crisis, and all three major U.S. stock indexes (including the S&P 500) dropped nearly 3% after the announcement. In this case, the rate cut didn’t rally stocks because fear of a pandemic recession overwhelmed the benefit of lower borrowing costs.
• July 2022 (big hike but dovish signal): The Fed raised rates by 0.75% (75 basis points) at the July 27, 2022 meeting. Fed Chair Jerome Powell suggested that future rate hikes could slow as earlier increases worked through the economy. Because this outcome was expected and Powell’s tone was more dovish (less aggressive) going forward, the stock market actually rallied. The S&P 500 increased about 2.6% on the day of the Fed meeting, and both stocks and bonds jumped in relief that the end of aggressive tightening was in sight. This example shows that it’s not just the rate move itself, but the Fed’s messaging, that drives market reactions.

Trading FOMC decisions

First, mark your calendar with the Fed meeting dates. The Fed usually meets eight times per year (about every six weeks), and the schedule is published well in advance. Knowing when these meetings occur lets you avoid unpleasant surprises; you don’t want to be caught off guard with a big stock position right before a Fed decision. Many investors and traders go “risk-off” (reduce positions) ahead of an FOMC meeting due to the volatility that can occur, while others specifically trade the news. Regardless, a prudent approach is to be aware the calendar and understand that markets can swing on those days.

When an FOMC decision day arrives, investors and traders typically watch three main things:

• The rate decision: This is the headline news. Did the Fed hike, cut, or hold rates? Equally important is the size of the move (e.g. 0.25% vs 0.50%). Markets usually have a consensus expectation before the meeting. If the Fed’s action is a surprise relative to expectations, you can expect a sharp reaction. For instance, a larger-than-expected hike might send stocks and bonds down quickly, whereas a surprise cut could lead to a rapid increase in prices. Remember, markets hate surprises. When the Fed did an unanticipated cut in March 2020, it actually amplified market volatility. As an investor or trader, compare the Fed’s move to what you’ve been hearing in the financial news beforehand. A decision in line with forecasts is often already “priced in” to stock prices, whereas an unexpected move can jolt prices instantly.
• The policy statement: Along with the rate decision, the FOMC releases a written statement. The policy statement gives insight into why the Fed made its decision and what might come next, so it’s a key piece of information for market participants. Traders parse every word of this statement for clues about the Fed’s outlook. The wording is very carefully crafted by policymakers, even small changes (like saying “moderate” vs “modest” growth, or changing phrasing on inflation) can signal how the Fed’s stance is shifting. Traders often pay close attention to the tone of the statement: is the Fed sounding more worried about inflation or more about unemployment? Did they mention new risks (such as global events) or change their view on whether the economy is “strong”? These subtleties often cause market swings. For example, if the statement adds a line that inflation is slowing, traders may bet that rate hikes are ending, boosting stock prices.
• The Fed Chair’s press conference: After the statement, the Fed Chair holds a press conference. This live Q&A session can be even more impactful than the initial announcement. Often, the market’s first move after the statement can completely reverse once the Chair starts explaining and answering questions. Investors and traders closely gauge the tone of the remarks: is it hawkish (focused on fighting inflation and likely to keep raising rates) or dovish (focused on economic weaknesses and possibly easing up on policy)? A single phrase in this press conference can send algos and market participants scrambling.

How to trade FOMC-related assets on Phantom

Phantom offers four ways you can trade the FOMC and rate decisions:

• Equities: Spot assets (tokenized stocks and indices) and perpetual futures (individual stocks and ETFs).
• Commodities: Tokenized assets (e.g. gold) and perpetual futures (gold, silver, crude, Brent, etc.).
• Fiat currencies: Perpetual futures (EUR/USD and USD/JPY).
• Cryptocurrencies: Spot assets (BTC, ETH, SOL, etc.) and perpetual futures (BTC, ETH, SOL, etc.). For a simple path into crypto, read our starter guide.

Equities

With tokenized stocks and indices, users have 24/7 access to the spot market, allowing for trading before and after standard market hours. You can build positions before FOMC results come out, react immediately to the news, or accumulate assets at different price points after volatility settles. Some traders use tokenized stocks and indices for short-term momentum trades, while others use them to gradually build a long-term portfolio during periods of market movement.

A selection of tokenized stocks and indices available on Phantom:

• Nvidia
• Apple
• Google
• Microsoft
• Amazon
• SPY
• QQQ

Perpetual futures allow you to take positions based on anticipated short-term stock price moves in either direction. You can go long if you expect a company or sector to benefit from FOMC decisions, or go short if you think those decisions may weigh on performance. Perpetual futures on individual stocks and ETFs can also be used to hedge existing spot positions (tokenized stocks/indices) during the volatility that often surrounds FOMC meetings. For example, if you hold several tech stocks, shorting QQQ can help hedge against a broader decline across the technology sector.

Here are some perpetual futures for individual stocks and ETFs you can trade on Phantom:

• Taiwan Semiconductor Manufacturing Company
• Meta Platforms
• Tesla
• Coinbase
• Robinhood
• EWY (iShares MSCI South Korea ETF)
• EWJ (iShares MSCI Japan ETF)

If you’d like a more in-depth overview, take a look at our perpetual futures guide.

Commodities

Commodities react to FOMC decisions through the dollar, real yields, and growth expectations. Rate hikes tend to strengthen the dollar and pressure demand-sensitive assets, while cuts or dovish signals weaken the dollar, support liquidity, and lift commodities like gold and oil.

Until recently, commodities were exclusively traded on specialized exchanges using standardized contracts and fixed unit sizes. That structure made commodities trading feel technical, complex, and unreachable for many everyday investors.

Now, Phantom lets you buy tokenized gold/gold-backed tokens such as XAUt0 (please bear in mind risks such as intermediary layers and counterparty exposure and for more details, refer to the documentation) directly in the app so you can hold digital exposure to these assets without dealing with complicated contract details. You can also trade perpetual futures on gold, silver, and other commodities with Phantom.

If you want to get started, read our Commodities trading guide.

Fiat currencies

Apart from crypto, equities, and commodities, you can now also trade fiat currencies on Phantom.

The first two currency pairs we brought to market are EUR/USD and JPY/USD.

You can trade them via perpetual futures:

• Perpetual futures let you trade currencies without owning the actual currency. You are just trading the price move.
• They also enable you to use leverage, which means you can open larger positions with less money. This increases potential profits, but it also increases potential losses.
• Perpetual futures trade 24/7, so you can enter and exit positions at any time. This feature allows for entering and exiting positions at any time.

FAQs

Disclaimer: Tokenized stocks aren't actual stocks. They are blockchain-based instruments issued by third parties that provide exposure to the performance of the underlying equities. While they track price movements and mechanics of the underlying securities, they don't confer ownership rights or shareholder benefits. They are available in select jurisdictions only. To enable a user to gain exposure to US equities, Phantom has partnerships with third-party issuers of tokenized stocks. Phantom supports access to tokenized stocks through third-party issuers. Phantom only provides the platform for you to view, buy, and sell these tokens. Each tokenized stock is governed solely by the terms set by its issuer. Phantom has no control over those terms and doesn’t guarantee any rights, returns, or liquidity. Trading tokenized stocks involves risk, including the potential loss of principal, and may not be suitable for all users. The value of tokenized stocks may fluctuate significantly, may not reflect the per share price of the underlying equity, and past performance isn't indicative of future results. Phantom Perps aren’t available in all jurisdictions. Perpetual futures trading involves substantial risk of loss and is not suitable for all users. Leverage amplifies both potential gains and losses—you can lose more than your initial investment. Positions may be liquidated automatically if the market moves against you, potentially resulting in the total loss of your collateral. Equity-based perpetual contracts do not represent ownership of any underlying asset. This information is for educational purposes only and does not constitute financial advice. You are solely responsible for your trading decisions.