- The VIX briefly dropped below 9 to a record low.
- The decline came right after the Fed released its statement.
- Stocks rose after the statement, but didn't recover all-time intraday highs earlier in the session.
The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, fell Wednesday to its lowest on record.
At 2:01 p.m., the VIX dropped below 9, hitting a low of 8.84, below the low of 8.89 from Dec 27, 1993. The VIX then quickly popped back up to close at 9.6, above its record close but below 10 for a tenth-straight day.
The Fed released its regular statement on monetary policy at 2 p.m. ET.
The Federal Open Market Committee said it would begin reducing its balance sheet "relatively soon." Policymakers also maintained the 1 to 1.25 percent range for its benchmark interest rate, as expected. Stocks rose after the statement came out.
Dan Deming, managing director at KKM Financial, said the drop in the VIX to a record low was the result of options traders reducing what they were willing to bid for S&P 500 options ahead of the Fed's statement. "The fact that it is summer and volumes have been low, that plays into it as well."
Three-day performance of the VIX
Even before Wednesday's move, the VIX had steadily fallen to lows not seen in more than two decades amid U.S. stocks' steady climb higher, prompting some concern that when market volatility returns, it will spike significantly.
"The market's very lax," said Lee Ferridge, head of macro strategy, North America, State Street Global Markets. "The chance of a rate hike this year are marginally reduced. It's positive for stocks and the VIX has declined."
On Tuesday, the VIX ended the day at 9.43, but earlier in that session, it fell below the closing record low of 9.31 set on Dec. 22, 1993, to hit 9.04.
The VIX last rose above 20 on Nov. 9, the day after the U.S. presidential election.
The S&P 500 has climbed nearly 16 percent since the election and hit an intraday record Wednesday.
Most market analysts have pointed out the decline in the VIX doesn't necessarily imply stock market complacency. Rather, the drop in the index reflects how it tracks the bets of options traders on whether the S&P 500 index will rise or fall.
Options give traders the right to buy or sell an asset at a preset price. The S&P 500's churn higher has given traders little reason to bet on a significant, volatile drop in the stock index.