Watching the FedWatch

The popularity of monetary policy prediction trackers has increased rapidly, and yet, their properties remain understudied. We examine the performance of the most widely used model, the CME FedWatch, and show that it provides strong predictive accuracy, generates considerable economic value, and contributes toward reducing market uncertainty. This model predicts FOMC rate decisions with 88% accuracy 30 days prior to meetings, exceeding the 75% accuracy of Fed funds futures. This prediction improvement translates into significant economic gains when trading at a meeting level. FedWatch popularity is associated with lower uncertainty ahead of FOMC meetings, which in turn mitigates the pre-FOMC drift.