The odds of an October rate increase on Polymarket rose to 65% from 54%, on higher volume. Fed funds futures had already moved to about 73%, leaving the two markets 8 points apart instead of 16.
On Wednesday afternoon, Polymarket and the fed funds futures market disagreed by 16 percentage points about whether the Federal Reserve will raise rates in October. By Thursday morning, Polymarket had moved most of the way toward the futures.
Polymarket's "Fed Decision in October" contract priced a 65% chance of a quarter-point increase early Thursday, up from 54% on Wednesday afternoon. The probability of no change fell to 35% from 46%. Trading volume on the contract rose to about $11.7 million from $10.4 million, an increase of roughly 13%.
The futures market had moved first. After Wednesday's strong business survey and Fed Governor Michael Barr's remarks favoring more increases, the probability of an October hike implied by fed funds futures climbed to about 73% by Thursday morning. That compares with 55% a week earlier and 11% a month ago.
The two markets now sit about 8 points apart, half the gap that opened on Wednesday.
That sequence answers a question the gap raised. One possibility was that Polymarket traders disagreed with the futures market about what the data meant. Another was that a thinner market with fewer institutional participants was simply slower to process the news. A contract that moved 11 points overnight, on rising volume and in the same direction as futures, is consistent with the second.
Fed officials added fresh inputs on Thursday. Philadelphia Fed President Anna Paulson said "some modest further tightening may be warranted." New York's John Williams called one more increase by year-end a "reasonable" expectation. Richmond's Tom Barkin said the drivers of inflation had proved more durable than he expected.
The futures market is looking beyond October. Traders see roughly a 50% chance that the policy rate will be at least a full percentage point higher by this time next year, a scenario barely priced a month ago.
The remaining 8-point gap is the next thing to watch. The Fed's last meeting raised rates to a range of 3.75% to 4%. Polymarket's contract resolves on , the day after the – meeting ends. If it keeps converging toward futures, the two markets will be pricing the same outcome. If it settles at a discount, Polymarket traders will be making a distinct call that a hike is less likely than institutional markets think.