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Why You Shouldn’t Take Action Right After The Fed Meets

When the Federal Reserve makes rate decision, there are good reasons not to act right away.
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Events like Federal Reserve decisions on interest rates are closely followed by investors, traders and the financial media.

They’re also followed by the algorithm programs investment houses use to manage high-speed trading.

That makes it basically impossible for individual investors to try to act on any news fast enough to take advantage of the information.

But there’s another reason Real Money’s Timmothy Collins is wary during such events.

That’s because the market's first reaction frequently gets it wrong.

“I still follow the concept that the first move often fades the following day,” Collins wrote recently on Real Money. “That means I'm not excited to see us pop immediately post headlines.”

Take January’s Federal Reserve decision, for instance. There were no surprises out of the meeting as the FOMC held rates steady and signaled they would like raise interest rates in March (at next week's meeting).

“It's always amazing to see confirmation of the same thing that we all knew, and no one really thought was bullish for the market … create some buying,” Collins wrote.

Indeed, on the day of January’s Fed announcement, the S&P 500 spiked more than 1% intraday, only to finish lower. The index fell again the next day, only to rebound two days later after Apple  (AAPL) - Get Free Report reported strong earnings. 

Of course, next week's Fed meeting comes under some of the most trying circumstances in years. Vladimir Putin's invasion of Ukraine and the global sanctions placed on Russia have roiled markets and poured more gas on the inflation fire.  

So while you probably shouldn't make any quick investment moves, it's OK to watch what happens.

Get more trading strategies and investing insights from the contributors on Real Money.