FOMC announcements and asset returns - the surprise cut always matters

There has been the view that FOMC announcements are usually associated with stronger equity moves; however a closer looks suggests that the up move is only really associated with surprise cuts.  The behavior of equity markets on FOMC announcement dates when the moves are anticipated or when they are higher are not different than non-announcement dates. This response to a surprise is expected in a rational expectations world but it clearly places focus on the surprise cut portion of a change. The markets seems to value the surprise as validation of the Fed put on easing. These empirical issues have been described well in "FOMC Announcements and predictable returns" by Mihail Velikhov. However, the impact of FOMC announcements is actually short-lived. 

To many who watch the market closely, this result may not be surprising, but it suggests that in spite of the best efforts of the Fed and the market expectations through the Fed funds futures, there are times that the market is surprised and will have a strong equity return reaction. If we use this model to extrapolate what will happen if there is a Fed rate hike, the market reaction should not be significant. Perhaps September was an anomaly.