Traders on Polymarket now put the probability of the Fed holding rates steady in 2024 at 32%, compared to 7% in March.
Traditional markets have scaled back expectations to two 25 basis points rate cuts from six in early January.
The probability that the U.S. Federal Reserve (Fed) will keep interest rates unchanged this year is rising.
Betters on blockchain-based betting site Polymarket now see a 32% chance of the Fed keeping the benchmark interest rate steady between 5.25% and 5.5% by the end of the year. That’s a significant change from the 7% probability seen nearly a month ago.
Meanwhile, punters see a 27% probability of a 25 basis points (bps) rate cut.
The hawkish shift in the market sentiment could dampen the demand for risk assets, including cryptocurrencies and technology stocks. According to some analysts, bitcoin’s (BTC) surge to record highs above $73,000 in the first quarter was primarily fueled by the anticipation of swift interest rate cuts.
The uptrend in the leading cryptocurrency by market value has stalled since mid-March, with prices trading between $60,000 and $70,000.
Hawkish pricing on Polymarket is consistent with traditional markets, where traders now see just two 25 basis points rate cuts in 2024 versus six in early January. Bank of America recently pushed out the timing of the first Fed rate cut to December from June, while Societe Generale said the central bank would not cut rates until 2025.
A few weeks ago, markets and policymakers were convinced that inflation would continue to cool in the coming months, allowing the Fed to cut rates rapidly in the year’s second half.
However, the latest data, particularly March’s strong jobs report and hotter-than-expected inflation print, which showed a third straight monthly acceleration in the cost of living, has weakened the case for immediate rate cuts.
“We know that there is no traditional justification for U.S. rate cuts in the short term. Employment is strong, retail sales are beating expectations, Q1 GDP is expected to be not much lower than Q4, and inflation is proving stubborn. Even Fed Chair Powell, yes, he who less than four months ago told us that cuts were imminent, is now suggesting that they may hold rates high for longer than previously anticipated,” Noelle Acheson, author of Crypto Is Macro Now newsletter, said in Wednesday’s edition.
Federal Reserve Chairman Jerome Powell said Tuesday that inflation has returned to the U.S. economy, indicating that rate cuts may not happen any time soon.
On Thursday, New York Fed President John Williams joined the hawkish bandwagon, saying, “I definitely don’t feel urgency to cut interest rates” given the strength of the economy.”
“I think eventually…interest rates will need to be lower at some point, but the timing of that is driven by the economy,” Williams said at the Semafor’s World Economy Summit held in Washington.
Atlanta Fed President Raphael Bostic said he is comfortable “being patient,” hinting that the end of the year is the likely timing for the first rate cut.
San Francisco Fed President Mary Daly echoed a similar sentiment Monday, saying, “The worst thing to do is act urgently when urgency is not required.”
