Traders on prediction markets have raised the probability of an interest rate increase by the US Federal Reserve (Fed) at its July meeting.
On Polymarket, the probability of keeping rates unchanged has dropped to 73.8% over the past day. The chances of a 25 basis point hike have increased to 26.4%. At the time of writing, the total trading volume on this market has reached $109 million.
The breakdown is similar on Kalshi: 72.9% for keeping rates steady and 27.6% for a hike. The total trading volume on this market was $46.2 million at the time of writing.
The Federal Open Market Committee (FOMC) meeting will take place on July 28-29. The current target range for the federal funds rate is 3.5–3.75% annually. At the time of writing, 66.3% of traders do not anticipate any change. However, one-third of market participants expect a hike to 3.75-4%.
Markets React to Oil and the Middle East
The rise in the probability of a rate hike is not solely linked to persistent inflation. According to Reuters, some major brokerages have started to view the July Fed decision as having a less obvious outcome than usual.
The agency reports that BofA Global Research linked the revision of expectations to rising oil prices. Most brokers, including Deutsche Bank, still expected rates to remain unchanged but acknowledged a higher risk of a hike amid tensions in the Persian Gulf and limited signals from Fed Chair Kevin Warsh.
The Strait of Hormuz Paradox: Why the Oil Shock Didn't Break Bitcoin
Brent crude briefly rose above $100 per barrel last week for the first time since May 26. According to S&P Global, the September futures contract closed at $100.69 on July 23. By July 27, oil had retreated from its peak, down 9% to $87.84 per barrel.
At the same time, June data provided an argument for a pause. According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) fell 0.4% month-on-month last month, while annual inflation slowed to 3.5% from 4.2% in May.
Recall that in July, Grayscale analysts linked Bitcoin's potential bottom to the future policy of the Fed.
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