Blockchain based prediction platform Polymarket data indicates that the likelihood of the US Federal Reserve (Fed) maintaining current interest rates throughout the year is increasing. Currently, participants on Polymarket assess the probability that the Fed will keep the benchmark interest rate between 5.2% to 5.5% by year-end at 32%, a significant rise from the 7% probability recorded about a month ago. A deeper look into Polymarket’s forecasts reveals that participants see a 27% chance of a 25 basis point (bps) interest rate cut.
Risk Increases for Bitcoin and Altcoins
As evident from Polymarket’s data, a shift towards a more hawkish market stance reduces demand for risky assets, including Bitcoin, altcoins, and technology stocks. Analysts highlight that Bitcoin’s rise to an all-time high of $73,750 in the first quarter was largely driven by rapid interest rate cut expectations, and now the change in these expectations is casting negative impacts.
Indeed, the momentum of the largest cryptocurrency has waned since mid-March, with prices now stuck between $60,000 and $70,000. This hawkish outlook reflected on Polymarket is following the trend observed in traditional markets. Currently, traditional markets expect only two 25 basis point interest rate cuts compared to the six cuts anticipated at the beginning of January.
Recent adjustments in major financial institutions’ expectations regarding the timing of interest rate cuts also align with the prevailing hawkish mood. Notably, Bank of America has postponed the timing of the Fed’s first interest rate cut from June to December, while Societe Generale predicts that rate cuts will not occur until 2025.
Recent Economic Data Postpones Interest Rate Cut Expectations
The current shift in market dynamics stems from recent economic data, particularly strong employment figures for March and higher-than-expected inflation figures indicating a third consecutive month of rising cost of living. These data, as acknowledged by Fed Chairman Jerome Powell, indicate a resurgence of inflation in the US economy and point to a delay in potential interest rate cuts.
Moreover, statements by New York Fed President John Williams, Atlanta Fed President Raphael Bostic, and San Francisco Fed President Mary Daly underscore the importance of economic indicators in determining the right timing for interest rate cuts and support the idea that patience is necessary in monetary policy decisions. Currently, there is a consensus among policymakers to maintain current interest rates due to ongoing economic strength and inflationary pressures.
