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The Effects of Monetary Policy on Macroeconomic Expectations: High-Frequency Evidence from Prediction Markets

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.

2 November 2026 · Source: NBER new working papers

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 revisions are sometimes positively correlated with Fed interest rate changes, leading to a debate about what could explain these puzzling correlations. 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 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”.

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