The Fed’s Biggest Interest Rate Call in Years Happens Wednesday: Bettors Still Split

By the time this goes to press we could actually see a cut in the interest rate.  As of Wednesday morning, the gambling market was still split on a 25 and 50 basis point decrease.

From CNBC:

• This week’s gathering of the central bank’s Federal Open Market Committee carries an uncommon air of mystery.
• Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50 basis points, or half a point? Fed watchers are unsure.
• Beyond the quarter vs. half debate, this will be an action-packed Fed meeting, with updates on projections for rates cuts in the future as well as adjustments to economic estimates.

“I hope they cut 50 basis points, but I suspect they’ll cut 25. My hope is 50, because I think rates are just too high,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC.  “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five and a half percent-ish funds rate target. So I think they need to normalize rates quickly and have a lot of room to do so.”

The Impacts

• Cash in the bank will start earning less.
• A money market account often boosts your return from a common checking account, but you'll likely need to deposit anywhere from $10,000 to $100,000 to earn the raise, according to Yahoo Finance.
• Lower interest rates on personal loans, some private student loans.
• Home mortgage loan rates should begin to drop.
• Refinancing of some mortgages could be enticing.  This is where you are applying for a new mortgage to replace the current one. This will give you a new rate, term and monthly payment.  The monthly payments could be significantly lower.

• If your goal is to reduce your interest rate and monthly mortgage payments, shorten the loan term or tap into your home’s equity, refinancing may be a strategic move in line with your goals.

Refinancing Benefits?

From the Kansas City Star:

"Lower your mortgage interest rate: Your interest rate can impact the amount of your monthly mortgage payment. If the rates are lower than the rate on your original loan, you may save on your monthly payment. It may also help build equity in your home at a faster rate because you’re not paying as much in interest. Change your mortgage term: If your financial situation has improved, refinancing your mortgage with a shorter term may result in a higher monthly mortgage payment but it can help pay off a mortgage sooner and potentially save you money on interest. For example, if you have a higher income or have paid off other debts, you may be able to afford a higher monthly payment and a shorter loan term."

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The Federal Rate Cut Betting Market

Polymarket reports $53 million bet to date.  The popular site does not accept customers residing in the U.S. 

How This Market Will Resolve

The FED interest rates are defined in this market by the upper bound of the target federal funds range. The decisions on the target federal fund range are made by the Federal Open Market Committee (FOMC) meetings.

This market will resolve to “Yes” if following the Federal Reserve's September 2024 meeting the upper bound of the target federal funds rate is decreased by 50 or more basis points below the level it was prior to the meeting. Otherwise, it will resolve to “No.”

The resolution source for this market is the FOMC’s statement after its meeting scheduled for September 17 - 18, 2024 according to the official calendar: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

The level and change of the target federal funds rate is also published at the official website of the Federal Reserve at https://www.federalreserve.gov/monetarypolicy/openmarket.htm.

This market may resolve as soon as the FOMC’s statement for their September meeting with relevant data is issued. If no statement is released by November 6, 2024, 11:59 PM ET, this market will resolve to the "No change" bracket.