We use survey data on expectations about future monetary policy rates to decompose excess returns on Fed Funds future and Overnight Indexed Swaps (OIS) into a term premium and an expectation error component. We find that excess returns are almost entirely driven by expectation errors, while term premia are slightly negative and economically unimportant. We show that there is a strong asymmetry in that most of the expectation errors over the last three decades stem from market participants underestimating how aggressively the Federal Reserve would ease policy. Our evidence suggests that market participants at the time were unaware of changes in the central bank’s reaction function, in particular the importance attributed to deteriorating financial conditions and falling stock market returns. We confirm our main results in an international sample of six major countries.