In brief
- The odds that the Fed pushes for “no change” on interest rates has fallen sharply on prediction markets in the last 24 hours.
- The odds of a quarter-point Fed rate hike have jumped: up almost 10% on Polymarket, and around 8% on Myriad.
- Fed-funds futures put the probability of an increase at 38.8% as of Monday afternoon.
The odds that the Federal Reserve does the unexpected tomorrow just went up.
Prediction-market traders today sharply raised the implied odds of a Federal Reserve rate hike, one day before the central banks two-day July meeting begins.
On Polymarket—a prediction market where contract prices behave like crowd-implied probabilities—the “no change” outcome fell 8.9 percentage points to 73.25% in the last 24 hours. A 25-basis-point increase jumped 9.7 points to 26.65%, with $100.83 million traded overall and $5.78 million in the past 24 hours.
Myriad, a prediction market operated by Decrypts parent company Dastan, showed almost the same split, displaying 74% for “no change” and 27% for an increase. On Myriad, the odds of “no change” dropped by 9% in the past day while the odds of a rate hike jumped by 8%.
Professional rate traders were seemingly more nervous about the Fed's next move. Fed-funds futures—contracts used to price the Feds next move—put the chance of an increase at 37.6% Monday afternoon.
A basis point is a 0.01 percentage point. A 25-basis-point hike would lift the Feds current target range from 3.50%-3.75% to 3.75%-4.00%. When the Fed raises interest rates, borrowing becomes more expensive, which tends to slow spending and investment and can pressure risk assets. When it lowers rates, borrowing becomes cheaper, which can encourage spending and investment. The latter typically bodes well for risk assets such as Bitcoin and tech stocks.
The Fed held rates steady in June and warned that inflation remained elevated, while officials median projection placed the year-end rate at 3.8%. Then June inflation cooled to 3.5% from 4.2% in May, giving policymakers a reason to wait.
The FOMC meets July 28-29 and releases its interest-rate decision at 2 p.m. Eastern time on July 29.
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