Updated: December 18, 2024
Key Takeaways
54% of Polymarket users correctly predicted the 50 bps Fed rate cut, outperforming 92% of economists.
The crypto market value grew by 3.7% following the rate cut, while equities markets closed negatively.
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The majority of economists’ forecasts for the Fed interest rate decision on Sept. 18 were wrong, with 105 out of 114 predicting a 25 basis points (bps) cut. This is equivalent to 92% of forecasts. Interestingly, 54% of prediction market Polymarket users placed their bets on the right outcome of 50 basis points.
The bets on the Fed decision yesterday amassed nearly $59 million, with $10.9 million allocated to the 50 bps decrease.
Yet, despite having the majority of the odds, the largest amount of bets was placed at the “no change” outcome, with $23.5 million in the poll. A 25 bps increase registered the second-largest bet amount, with $17.6 million in the pot expecting this outcome.
The chances of a 50 bps rate cut started rising in the middle of last week, culminating in a 61% chance shown by Fed funds futures yesterday, as reported by Reuters.
Notably, the optimism around a deeper rate cut was met with an increased appetite for risk from investors. Matt Hougan, CIO of Bitwise, highlighted an increase in inflows toward spot Bitcoin (BTC) exchange-traded funds (ETFs), which suggests that BTC is becoming a “go-to tool for investors looking to go risk-on.”
Crypto rises, equities tank
The first cut in the US interest rate over the past four years prompted a positive reaction from risk assets.
Bitcoin (BTC) is up by 4.8% in the past 24 hours, followed by good performances from Ethereum (ETH), Binance Coin (BNB), and Solana (SOL), with spikes of 5.3%, 4.2%, and 8% respectively.
The positive reaction was registered by the crypto market as a whole since the sector’s total value grew by 3.7%, surpassing $2.26 trillion.
However, the equities market didn’t manage to close in a positive tone yesterday. Despite some upward movement registered following the rate cut decision, the S&P 500, Nasdaq, and Dow Jones ended the trading day with drawdowns of 0,29%, 0,3%, and 0,23% respectively.
In August, Polymarket saw a significant $1.44 million bet placed on a potential Federal Reserve rate cut by September, estimating a 58% and 40% chance for 50bps and 25bps cuts, respectively.
Earlier this month, 77% of Polymarket traders bet on a 25 basis point cut in the Federal Reserve’s upcoming decision, influenced by declining inflation and a weakening job market.
In April, Polymarket traders shifted their view, seeing a 32% chance that the Federal Reserve would not cut interest rates throughout the year, a rise from just 7% in March.
Earlier this week, Polymarket traders predicted a 99% probability of a Federal Reserve rate cut at their September 18 meeting, with expectations leaning towards a 25 basis point reduction.
Last week, an economist predicted that the anticipated 25-basis-point cut by the Federal Reserve could trigger a “sell-the-news” event for risk assets, based on the probabilities specified for the upcoming FOMC meeting.
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