Fed funds futures and a Polymarket contract on the October meeting are pricing nearly identical odds of another quarter-point increase. Both moved sharply after last week's hike.
Traders in the fed funds futures market and bettors on a crypto-based prediction market have arrived at almost exactly the same answer about the Federal Reserve's next move. Neither is confident.
Fed funds futures price a 53% chance the Fed raises rates again at its October 27-28 meeting. On Polymarket, a contract on the October decision shows a 54% probability of a quarter-point increase and 46% for no change, with more than $10.3 million traded. The contract resolves on October 29, the day after the meeting.
That convergence is notable because the two markets draw on very different participants. Fed funds futures are used heavily by institutions hedging real interest-rate exposure. Polymarket draws a different mix of traders betting on outcomes directly. When both land within a point of each other, it suggests the coin-flip reading reflects genuine uncertainty rather than a quirk of one venue.
The odds have moved a long way in a short time. On Polymarket, the probability of an October hike jumped from 38% to 56% after the Fed's September 16 decision, when the central bank raised its benchmark rate a quarter point to a range of 3.75% to 4%, its first increase in three years. The contract has since eased slightly to 54%.
Fed officials have kept the door open. Richmond Fed President Thomas Barkin said Tuesday that one hike may not be enough to tame inflation, and Boston Fed President Susan Collins wrote that inflation is increasingly likely to stay "notably" above the 2% target. Markets are more confident about the longer horizon, pricing an 89% chance of at least one more quarter-point increase by December.
The swing factor is oil. Crude fell for several sessions this week on the first direct U.S.-Iran talks since June and the restart of a Saudi pipeline, easing some of the energy-driven inflation pressure behind the September hike. Brent's rebound above $100 on Wednesday shows how quickly that relief can reverse.
For investors, a 53% to 54% probability is effectively a market with no conviction on timing, only on direction. The presidents of the New York, Richmond, Cleveland and Philadelphia Fed banks all speak Thursday. With two very different markets agreeing the October meeting is a toss-up, those remarks carry unusual weight in tipping the odds one way or the other.