The Effects of Monetary Policy on Macroeconomic Expectations: High-Frequency Evidence from Traded Event Contracts

When the Federal Reserve raises interest rates, standard macroeconomic models and VARs predict that output, employment, and inflation should fall over the next several quarters. However, monthly-frequency professional macroeconomic forecast data often respond positively to these events, leading to a debate about what could explain these puzzling responses. We bring to bear new high-frequency data on this question from macroeconomic event contracts traded on Kalshi, a CFTC-licensed, U.S.-based event trading exchange and prediction market. These high-frequency event contracts allow us to isolate and estimate the effects of monetary policy and other announcements on the Kalshi market-implied macroeconomic expectations. Our results are consistent with standard transmission channels from monetary policy to the macroeconomy, with little or no role for a “Fed Information Effect”.