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Abstract
Employing data from Polymarket, a blockchain-based prediction market where users trade on Federal Reserve interest rate decisions and scenarios related to central bank independence, we construct a hawk-dove score for individual wallets and link user-level beliefs to monetary policy expectations. Users who believe that President Trump will fire Federal Reserve Chair Jerome Powell, and who therefore expect more intense political pressure on the central bank, hold more dovish views; they expect lower short-term interest rates than other users. These differences persist after controlling for individual wallet-level characteristics such as trading volume, profitability, and collateral use. Agents anticipating Powell’s removal also anticipate higher long-term Treasury yields, concordant with concerns about reduced policy credibility and long-run inflation risk as pointed to by the literature on the time inconsistency of optimal policy. These findings suggest that political events shape expectations about future monetary policy, in this case through perceived threats to central bank independence.