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Financial markets react strongly to the announcements of monetary policy by the Federal Reserve (¡°the Fed¡±). Yet, how the Fed impacts market prices remains a subject of debate. This study delves into an actively traded market for binary event contracts to test the different channels proposed in the literature and to gain deeper insights into the market's perception of the Fed's influence on future macroeconomic indicators. Leveraging the novel data, our analysis connects Fed-related events directly to macroeconomic outcomes such as GDP, unemployment, and inflation. We investigate the interplay between contracts on these economic indicators and on the Federal Funds Rate, using high-frequency market trading volumes and prices over contracts of different forecasting horizons, as opposed to using surveys. We find that the market for GDP, unemployment and inflation strongly reacts to FOMC meetings. Additionally, we observe that other major forms of Fed communication, notably the Fed Chair's speeches, hold more sway over market expectations for these macroeconomic variables than FOMC announcements. Finally, we find rich variations across the term structure of market¡¯s perceptions about how monetary policy would impact future economy.

zcarol2@ceibs.edu