At Polymarket, the leading prediction market platform in the cryptocurrency ecosystem, the trend has reversed and now most users are betting that the interest rate cut announced by the US Federal Reserve (Fed) this Wednesday would be greater than 0.5 points.
As CriptoNoticias reported, at the beginning of the month 78% of betting participants anticipated a 25 basis point decrease in the interest rate. However, the sentiment of bettors changed in recent days and now 50% holds that the deduction will be 0.50 points.
Meanwhile, 45% of traders expect a more moderate cut of 0.25 points. Meanwhile, 1% believe that the agency led by Jerome Powell will not announce changes on September 18, while the remaining percentage (1%) risk that the interest rate will increase by more than 0.25 points.
It is important to note that the bets reflect traders’ expectations about the direction that the economy of the world’s leading financial power will take in the short term, taking into account data such as inflation and job creation.
As CriptoNoticias reported, the cryptocurrency betting platform is experiencing record activity in anticipation of the upcoming US presidential election.
For the research team at Grayscale, a cryptocurrency exchange-traded fund (ETF) issuing company, Polymarket has the potential to be “a source of truth” to the point that The main media outlets use it to measure opinion polls and place it on a par with national surveys.
Markets and interest rates
Before asking why the trend has changed so much in recent days, it is important to clarify that a cut in the interest rate not only affects traditional markets, but also has implications for digital assets like bitcoin (BTC) and cryptocurrencies.
When interest rates fall, it usually awakens investors’ appetite for assets considered “risky” such as stocks and BTC, with the aim of generating higher returns. Otherwise, they will seek refuge in safer financial instruments such as Treasury bonds, which are not exposed to market fluctuations. Currently, The interest rate ranges from 5.25% to 5.50%.
Expectations in the markets
Regarding the change of trend in Polymarket, Logan Kane, market analyst, explains that traders got the idea of a 50 basis point cut from an article published recently in the Wall Street Journal. “A lot of people parrot the idea that the Fed will cut 50 basis points, but few know where the idea came from and even fewer bothered to read the Wall Street Journal article,” he says.
In this regard, he explains that the Fed has some serious concerns about the labor market, the use of credit and savings to support consumer spending. He also says:
“That is the case for 50 basis points. But if the Fed had wanted to cut interest rates earlier, it had a clear opportunity to cut them by 25 basis points in July, which it did not take advantage of.”
Logan Kane, market analyst.
He also believes that a 25-point cut would be best for the market, arguing that a cut greater than that figure “could further weaken the labor market by eliminating new demand created by interest income in the economy.”
Neil Dutta, head of economics at Renaissance Macro, argues that a cut of just 25 basis points will have consequences for the market. “Unless something changes, the 25 will tighten financial market conditions, pushing interest rates up,” he notes.
Gregory Daco, chief economist at EY, stresses the risks of a smaller cut than the market expected. “People are saying, well, 25 basis points doesn’t really matter. But the risks are asymmetric,” he explains.
Furthermore, he believes that if the Fed does not relax its monetary policy “then we will see a revaluation of rates and an upward movement,” which could negatively affect consumer spending, sentiment and the economy in general, according to Daco.
Leaving aside the debate about the impact of the rate cut, we will first have to wait for Fed Chairman Jerome Powell to comment. Keep your word and finally deliver the ads corresponding to “adjust monetary policy”.