According to Polymarket, a forecasting market, investors see a very low probability of the Fed cutting interest rates at its upcoming meetings.
In expectations for April, the scenario of “interest rates remaining unchanged” is overwhelmingly favored, while the possibilities of both 25 basis point and 50 basis point or more cuts are priced in as almost negligible. Similarly, expectations of an interest rate increase remain quite limited.
In pricing for April, the probability of interest rates remaining unchanged is approximately 99%, while the probabilities of a 25 basis point cut and a cut of more than 50 basis points remain below 1%. Similarly, the probability of an interest rate increase is also priced below 1% and is almost ignored by the market.
The Federal Reserve’s interest rate decision for April will be announced on April 29th.
The outlook for June remains largely unchanged. Markets are pricing in a 93% probability of interest rates remaining unchanged, while a 25 basis point cut is projected at 4%, and an overall rate hike at around 2%. More aggressive measures (50 basis points or more) are also priced in with a very low probability.
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On the other hand, a notable development at the Fed has been the leadership debate. The US Justice Department’s decision to drop the criminal investigation against Fed Chairman Jerome Powell is being seen as a step that could pave the way for a possible change of leadership for Kevin Warsh, nominated by President Donald Trump. This development has also brought about discussions of a possible “regime change” within the Fed.
On the macroeconomic front, uncertainties persist. While markets expect the Fed to keep interest rates unchanged at its next meeting, it is noted that this may be insufficient to alleviate current economic pressures. In particular, inflationary pressures, the impact of the war with Iran on energy prices, and the fragile outlook for the labor market are limiting the Fed’s room for maneuver.
The sharp rise in oil prices is one of the important factors supporting this picture. The strong increase in Brent oil prices after the Iran war is driving up fuel and transportation costs, increasing pressure on inflation. It is also stated that many companies have postponed their hiring plans during this period, and consumer confidence is hovering near historically low levels.
*This is not investment advice.