Under Pressure? Central Bank Independence Meets Blockchain Prediction Markets

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Abstract

We examine how perceived threats to central bank independence shape expectations of monetary policies and financial outcomes. Using wallet-level data from Polymarket, a blockchain-based prediction market where users trade on Federal Reserve interest rate decisions and scenarios for central bank independence, we construct wallet-level measures of expectations. Users who believe President Trump will fire Fed Chair Powell and anticipate political pressure on the central bank expect lower short-term rates than other users. In addition, they expect higher long-term Treasury yields and higher inflation, consistent with reduced policy credibility. The findings highlight the importance of institutional independence for monetary policy credibility.