Fed rate hike odds jump on prediction markets before July decision
Polymarket, Myriad and fed-funds futures showed rising odds of a July Fed rate hike ahead of Wednesday’s interest-rate decision.
By Theo Nakamura · Staff Writer
· 2 min read
Fed rate hike odds moved higher across prediction markets on Monday, putting retail investors on alert before the Federal Reserve’s July interest-rate decision. A surprise increase would affect more than bond traders: higher rates can weigh on borrowing, growth stocks and risk assets such as Bitcoin.
On Polymarket, traders pushed the implied chance of a 25-basis-point increase to 26.65%, up 9.7 percentage points over the prior 24 hours. The market’s “no change” contract fell 8.9 percentage points to 73.25% over the same period, according to Polymarket data cited Monday.
Polymarket had $100.83 million in total trading volume tied to the July Fed decision, including $5.78 million over the past 24 hours, according to the market’s data.
Will the Fed raise rates in July?
Prediction markets still showed “no change” as the leading outcome, but the chance of a rate increase rose sharply in the final stretch before the meeting. Myriad, a prediction market operated by Dastan, displayed a similar split: 74% for no change and 27% for a 25-basis-point increase.
Myriad data showed the no-change outcome down 9% over the past day, while the rate-hike outcome rose 8%. Prediction markets are venues where users buy and sell contracts tied to future events, so prices are often read as crowd-implied probabilities rather than official forecasts.
Professional rates markets also reflected a meaningful chance of a hike. Fed-funds futures, contracts traders use to price expectations for Federal Reserve policy, put the probability of an increase at roughly 38% Monday afternoon, according to the Investing.com Fed Rate Monitor.
What would a 25-basis-point hike mean?
A basis point is one-hundredth of a percentage point, so 25 basis points equals 0.25 percentage point. A move of that size would raise the Fed’s target range from 3.50%-3.75% to 3.75%-4.00%.
Rate hikes make borrowing more expensive for consumers and companies. That can slow spending and investment, and it can pressure risk assets because investors may demand higher returns to justify owning assets whose payoff depends more on future growth.
Rate cuts work in the opposite direction by making credit cheaper, which can support spending and investment. Lower rates are generally more favorable for risk assets such as Bitcoin and technology stocks, according to the market logic described around Fed policy.
The Fed left rates unchanged in June and said inflation was still elevated. Officials’ median projection at that time placed the year-end policy rate at 3.8%.
Inflation later cooled in June to 3.5%, down from 4.2% in May, giving policymakers a reason to wait rather than raise rates immediately. The Federal Open Market Committee is scheduled to meet July 28 and 29, with its interest-rate decision due at 2 p.m. Eastern time on July 29.
This story draws on original reporting from Decrypt.
