TL;DR:
- On Polymarket, the option for a 25-basis-point increase rose 9.7 percentage points to 26.65%.
- The Myriad platform reflected an equivalent adjustment, recording a 27% probability of an upward interest rate adjustment.
- Federal funds futures contracts priced the odds of a rate increase at 37.6% on Monday afternoon.
On Monday, the odds of a surprise Fed rate hike rose across major prediction markets, just one day before the agency holds its monetary policy meeting set for July 28-29.
On Polymarket, the possibility of the Federal Reserve keeping rates unchanged fell 8.9 percentage points in the last 24 hours, standing at 73.25%. In parallel, the contract considering a 25-basis-point hike increased to 26.65%, accumulating a traded volume of $100.83 million dollars.
Data from the Myriad platform exhibited a practically identical distribution of probabilities. The scenario of keeping rates steady fell 9% daily to stand at 74%, while the stance in favor of an increase gained eight percentage points, reaching 27%.
Uncertainty also spilled over into traditional financial markets. According to the prices of federal funds futures traded this Monday, professional traders assigned a 37.6% probability to a hawkish adjustment.
A 25-basis-point increase would put the Federal Reserve’s target range between 3.75% and 4.00%, up from the current level of 3.50%-3.75%. A higher borrowing cost makes credit more expensive, which typically slows down spending and disrupts the flow of capital toward risk assets.
Macroeconomic Background and FOMC Schedule
The Federal Reserve held interest rates steady during its June session. At that time, official documentation indicated that inflation remained at elevated levels, setting officials’ median year-end projection at 3.8%.
Subsequently, June’s consumer price index showed a deceleration to 3.5%, down from the 4.2% recorded in May. This reading provided a breathing room that analysts interpreted as an argument in favor of institutional caution.
The Federal Open Market Committee (FOMC) will deliberate between July 28 and July 29. The final decision on interest rates will be formally published on July 29 at 2:00 p.m. Eastern Time.
