The decentralized prediction platform Polymarket is witnessing significant activity as users place a $1.44 million bet on the Federal Reserve cutting interest rates by September 2024. This wager reflects broader market speculation and uncertainty surrounding the Fed’s future actions amid a recent market downturn.
The $1.44 million bet on Polymarket is split between predictions that the Fed will cut rates by over 50 basis points (bps) and by 25 bps. Specifically, users have placed $687,343 on the likelihood of a 50 bps cut and $313,224 on a 25 bps cut. Current Polymarket data suggests a 58% chance of a rate cut exceeding 50 bps and a 40% chance of a 25 bps reduction.
In comparison, regulated futures markets are also reflecting this sentiment. According to the CME’s FedWatch tool, traders estimate an 83.5% probability of the Fed cutting rates by 50 bps in September, with a 16.5% chance of a 25 bps cut.
The prediction on Polymarket will resolve to “Yes” if, following the Federal Reserve’s September 2024 meeting, the upper bound of the target federal funds rate is reduced by 50 or more basis points from its pre-meeting level. Otherwise, it will resolve to “No.”
In addition to the September rate cut, there is also a prediction regarding the likelihood of an emergency rate cut in 2024. Users have placed a $58,675 bet on a 25% chance of such an emergency cut.
The current federal funds rate, which determines the interest banks charge each other for overnight loans, is between 5.25% and 5.5%. Financial experts, including WisdomTree’s Senior Economist and The deVere Group’s CEO, have suggested that the Federal Reserve may need to lower rates to mitigate recession risks.
Polymarket has recently experienced a surge in activity, achieving an all-time high trading volume of $387.01 million in July and a record number of users totaling around 44,520. The platform’s cumulative volume surpassed $1 billion in early August, driven in part by predictions related to U.S. political events.
The significant bets on Polymarket reflect growing market anticipation and speculation about the Federal Reserve’s future monetary policy moves in response to ongoing economic challenges.
