Following the recent volatility in global equity markets, some analysts suggest that the U.S. Federal Reserve might implement an emergency rate cut before September. In addition, market predictions are leaning toward a rate cut at the September Federal Open Market Committee (FOMC) meeting. The key question is the extent of this cut. According to CME’s Fedwatch tool, there is a greater likelihood of a 50 basis points (bps) reduction than a 25bps cut.
Market Participants Anticipate Likely Rate Reductions Ahead
At the moment, market participants are speculating on whether the U.S. Federal Reserve will soon reduce interest rates and if the reduction will be sufficient. For insights into market expectations, individuals often refer to CME Group data or utilize the Fedwatch tool. Additionally, some Fed rate wagers have been placed on the blockchain prediction market Polymarket. Currently, the federal funds rate set by the U.S. central bank stands at 5.25% to 5.5%, the highest level since 2001.
Current CME futures data suggests that rates could drop to between 4% and 4.25% by the end of 2024. The Fedwatch tool indicates a 13.5% probability of a 25 basis points (bps) cut at the Sept. 18 FOMC meeting, with an 86.5% likelihood of a 50bps reduction. As for the Nov. 7 meeting, which follows the U.S. election, there’s an 8.6% chance of a 25bps cut and a 56.8% probability that rates could fall between 4.5% and 4.75%. However, there have been occasions where the Fedwatch tool has not accurately predicted the Federal Reserve’s actions.
Meanwhile, bettors are highly active on Polymarket, speculating on the Federal Reserve’s future decisions. As of 7 p.m. EDT on Aug. 5, a $1.5 million bet on the September FOMC meeting suggests a 60% chance of a 50bps cut. According to Polymarket bettors, there’s a 37% chance of a 25bps cut and a 5% chance that the Fed will leave the target rate unchanged. Bets are also placed on the number of rate cuts expected this year.
Polymarket data shows a 25% chance of five rate cuts this year, totaling 125bps. There’s a 24% chance of four cuts, reducing rates by 100bps, and a 19% chance of three cuts, lowering rates by 75bps. Both Polymarket odds and the Fedwatch tool’s projections have shifted significantly over the past day as global stock markets experienced one of their worst days since 1987. Currently, market participants are on edge, recognizing that a soft landing seems increasingly unlikely.
Source: bitcoin news
