Prediction markets record an increase in the probability of a Fed rate hike in July.
Participants in decentralized prediction markets have adjusted their expectations regarding the upcoming Federal Reserve meeting. The probability of a 25 basis point rate hike in July has notably increased, signaling a shift in market sentiment amid geopolitical and commodity instability.
On the Polymarket platform, the probability of keeping the rate unchanged has dropped to 73.8% over the past day, while the chances of a hike have surged to 26.4%. The total trading volume for this contract has already exceeded $109 million, indicating high trader engagement. A similar picture is observed on Kalshi: 72.9% for a pause and 27.6% for tightening, with a trading volume of $46.2 million.
The FOMC meeting is scheduled for July 28-29. The current target range for the rate is 3.5–3.75% per annum. According to the CME FedWatch Tool, 66.3% of traders still do not expect changes, but nearly a third of market participants (33.7%) are pricing in a hike to 3.75-4%.
Oil Factor and Geopolitics
The increase in the probability of a rate hike is driven not only by persistent inflationary pressure. Major brokerage houses, including BofA Global Research, have revised their forecasts, pointing to a sharp spike in oil prices as a key trigger. Brent briefly surpassed the $100 per barrel mark last week for the first time since May, though it corrected to $87.84 by July 27.
The escalation of the situation in the Persian Gulf and the lack of clear signals from Fed Chair Kevin Warsh add to the uncertainty. Despite the fact that most brokers (including Deutsche Bank) still lean toward a pause, they acknowledge the increased risks of tightening.
On the other hand, June inflation data provides arguments in favor of keeping the rate: the CPI fell by 0.4% month-over-month, and the annual figure slowed to 3.5% from 4.2% in May. This is a classic data conflict—slowing inflation versus rising commodity prices.
My comment: Prediction markets are essentially an instant snapshot of the collective trader mindset. The rise in the probability of a rate hike to 26-27% is not panic, but rather risk hedging. For the crypto market, such a scenario means increased pressure on risk assets in the short term, but if the Fed does take a pause, we could see a powerful bitcoin rebound. The key signal is not so much the rate itself, but Warsh's rhetoric after the meeting.