Polymarket users outperform economists in predicting US inflation
Key receivers
54% of Polymarket users correctly predicted a 50 bps Fed rate cut, better than 92% of economists. Following the price cut, the crypto market rose 3.7%, while stock markets closed in the negative.
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Most economists' forecasts for the Fed's interest rate decision on September 18 were wrong, predicting a cut of 25 basis points (bps) from 105 to 114. This equates to 92% of predictions. Interestingly, 54% of Polymarket's prediction market users placed their bets within the correct 50 basis points.
Bets on the Fed's decision raised nearly $59 million yesterday, with $10.9 million allocated to a 50 bps rate cut.
However, despite the majority of the odds, the largest bet amount was placed on the “no change” result, $23.5 million per poll. The 25 bps increase was the second largest recorded, with $17.6 million in the pot awaiting this result.
According to Reuters, the odds of a 50 bps rate cut started to increase in the middle of last week, reaching a 61% chance in Fed Funds futures yesterday.
In particular, optimism surrounding deep rate cuts has been linked to an increase in investors' appetite for exposure. Matt Hogan, CIO of Bitwise, highlighted the increased flow into spot bitcoin (BTC) exchange-traded funds (ETFs), suggesting that BTC is becoming the “go-to instrument for risk-averse investors.”
Crypto rises, stocks tank
The first cut in US interest rates in four years led to a positive reaction from risk assets.
Bitcoin (BTC) increased by 4.8% in the last 24 hours, followed by strong performances from Ethereum (ETH), Binance Coin (BNB) and Solana (SOL) with 5.3%, 4.2% and 8% spikes respectively.
A positive response was recorded in the crypto market as a whole, as the total value of the sector increased by 3.7% to more than $2.26 trillion.
However, the stock market failed to close on a positive note yesterday. Despite some upward movement following the rate cut decision, the S&P 500, Nasdaq and Dow Jones ended the trading day up 0.29%, 0.3% and 0.23% respectively.
In August, Polymarket saw the largest bet of $1.44 million on Federal Reserve rate cuts in September, estimating a 58% and 40% chance for 50bps and 25bps cuts, respectively.
Earlier this month, 77% of Polymarket traders bet on the Federal Reserve's upcoming decision by 25 basis points, due to inflation and a weakened labor market.
In April, Polymarket traders changed their view, seeing a 32% chance that the Federal Reserve will not cut interest rates throughout the year, up from 7% in March.
Earlier this week, Polymarket traders predicted a 99% chance of a Federal Reserve rate cut at their September 18 meeting.
Last week, an economist predicted that an expected 25-basis-point cut by the Federal Reserve could trigger a “sell-news” event for risk assets based on the likelihood of the upcoming FOMC meeting.
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