Is the Federal Reserve predictable, or is it just…seasonal? A fascinating pattern emerged: for years, the Fed seemed more inclined to ease monetary policy (lower rates or hold them steady) at the start of each quarter. But does this quirky trend still hold water in today’s rollercoaster economy, especially after rate hikes, a pandemic, and rampant inflation? Let’s dive in and find out!
Back in 2012, Liberty Street Economics published an intriguing piece highlighting this very seasonality in U.S. monetary policy. They observed that between 1987 and 2008, the Federal Reserve showed a distinct tendency to lower interest rates or refrain from raising them during the first month of each quarter – January, April, July, and October. This was noticeably different from decisions made in February/March, May/June, and August/September/November/December.
Now, over a decade later, we’re revisiting that analysis to see if this seasonal pattern has persisted through a period marked by significant economic upheaval: a rate hiking cycle, the COVID-19 pandemic, a surge in inflation, and another round of rate hikes.
A Closer Look at FOMC Decisions: The Recurring Seasonal Pattern
For this updated investigation, we’re focusing on a 25-year period from January 2000 to July 2025. It’s important to remember that before October 2008, the Federal Open Market Committee (FOMC) primarily managed monetary policy by announcing a specific target for the federal funds rate (FFR). After October 2008, they shifted to communicating a target range for the funds rate.
As you can imagine, the past 25 years have been anything but uneventful. The funds rate spent a considerable six years near the zero lower bound after 2008. Then came a moderate hiking cycle in the late 2010s, followed by another plunge to near-zero during the COVID-19 pandemic, and subsequently, a much more aggressive hiking cycle that began in 2022. While the funds rate declined by roughly 600 basis points during the period studied in the original 2012 post, the net decline since 2000 has only been around 125-150 basis points.
Despite all these dramatic shifts, the big surprise is that changes in the funds rate have continued to exhibit remarkably consistent seasonal behavior over the last 25 years, mirroring the pattern observed between 1987 and 2008.
The data shows that FOMC meetings held in the first month of a quarter (those blue dots we mentioned earlier) are disproportionately associated with decreases in the target rate (negative values), and under-represented when the target rate is increased. And this is the part most people miss: This pattern largely holds true even after the original blog post was published in October 2012.
Notice anything striking? The top right area of the chart is dominated by red dots. This indicates that most of the recent policy tightening (raising rates) has occurred during the second or third month of each quarter.
To quantify this, consider the total percentage point change in the federal funds rate target for FOMC meetings in January, April, July, and October, versus the total change during the remaining eight months of the year. Since 2000, the funds rate has decreased by a total of 4 percentage points during meetings in the first month of each quarter. In contrast, it has increased by nearly 3 percentage points during meetings in the other eight months. And since the original blog post in 2012? A 50 basis point increase in the first month of the quarter, compared to a whopping 375 basis point rise in all other months. So, the seasonal pattern seems to be alive and well.
But here’s where it gets controversial… Is it just coincidence?
As the original post suggested, this could simply be a coincidence resulting from the timing of FOMC meetings aligning with the broader economic cycles of easing and tightening. Perhaps the first month of each quarter just happened to coincide with periods when the Fed was more inclined to lower rates.
The original analysis attempted to address this by removing years with unusually few or many FOMC meetings in the first month of each quarter. Even after doing so, the seasonal differences remained statistically significant.
This time, we’re tackling the question from a slightly different angle. For each year, we calculate the total change in the funds rate. Then, we create a counterfactual scenario. Imagine that the total rate change for each year was distributed evenly across all FOMC meetings that took place that year, based on the actual meeting schedule.
In this hypothetical world, the cumulative rate changes from 2000 to 2024 would result in a 306 basis point decline in the first month of the quarter and a 193 basis point increase in all other months. This yields a difference of roughly 5 percentage points, compared to the 6.88 percentage point difference observed in the actual data. This suggests that the timing of FOMC meetings does explain a significant portion of the observed seasonality. However, there’s still almost 200 basis points of the seasonal pattern that remains unexplained.
However, when focusing on the period since 2012, the counterfactual path of rate changes closely mirrors the actual path. The real-world increase of 50 basis points in the first month of the quarter is nearly identical to the 57 basis point increase in the counterfactual scenario. Similarly, the 3.75 percentage point rise in all other months is almost the same as the 3.67 percentage point rise in the counterfactual.
The Verdict: Seasonality Explained (Mostly)
This leads to a powerful conclusion: the seasonal pattern observed since 2012 is essentially fully explained by the timing of FOMC meetings. The “excess seasonality” identified in the original post appears to have faded away after 2012. It seems that the Fed’s actions are less about a hidden seasonal preference and more about reacting to economic data as it becomes available, and the timing of those data releases often coincides with the start of a new quarter.
So, is the Federal Reserve truly predictable, or have we simply uncovered a statistical quirk? Does this analysis change your view of how the Fed operates? Share your thoughts and opinions in the comments below! Do you think the FOMC consciously or unconsciously considers the calendar when making decisions? Or is it all just a matter of chance? Let’s discuss!