According to prediction market Polymarket, investors see a very low chance that the Fed will cut interest rates at its next meeting.
The April forecast overwhelmingly supports the scenario of keeping interest rates on hold, and the possibility of a rate cut of 25 or 50 basis points or more is factored in to an almost negligible degree. Similarly, expectations for interest rate increases remain fairly limited.
The probability that interest rates will be left unchanged in April is about 99%, but the probability of a 25bp cut or a 50bp or more cut is still less than 1%. Similarly, the probability of interest rate increases is priced in at less than 1% and is largely ignored by the market.
The Fed’s April interest rate decisions will be announced on April 29th.
The outlook for June is almost unchanged. The market has priced in a 93% chance that interest rates will remain unchanged, with a 25 basis point cut expected to be 4% and an overall rate hike of about 2%. More aggressive measures (more than 50 basis points) are also priced in with very low probability.
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Meanwhile, a notable development at the Fed is the debate over its leadership. The U.S. Department of Justice’s decision to drop a criminal investigation into Federal Reserve Chairman Jerome Powell is being seen as a step paving the way for a possible leadership change from President Donald Trump’s nominee Kevin Warsh. This development also sparked debate within the Fed about the possibility of a “regime change.”
Uncertainty continues on the macroeconomic front. Markets expect the Fed to keep interest rates on hold at its next meeting, but note that this may not be enough to alleviate current economic pressures. In particular, inflationary pressures, the impact of the war with Iran on energy prices, and a fragile outlook for the labor market are reducing the Fed’s room for maneuver.
The sharp rise in oil prices is one of the key factors supporting this situation. A significant rise in Brent crude oil prices following the Iran war has increased fuel and transportation costs, adding to inflationary pressures. Additionally, many companies have postponed hiring plans during this period, and consumer confidence is said to be hovering near historic lows.
*This is not investment advice.
