This week in prediction markets:
Trump is convicted, but bettors on Polymarket have a conviction he'll stay out of prison and return to the White House.
No rate cut this year, Kalshi traders say
Donald J. Trump is the first U.S. president, former or otherwise, to be convicted in criminal court. But this dubious distinction did little to sway his odds of retaking the White House, prediction markets indicate.
For the uninitiated, on prediction markets, when the trade settles, those who bet on the correct outcome get $1 per contract purchased, and those who bought "shares" in the incorrect one get zero. The contract's value can be read like a poll; a contract with a value of 40 cents could be read as a 40% chance of the prediction coming true.
On crypto-based Polymarket, where the election contract is nearing $150 million in total bets, Trump's guilty verdict didn't do much to move prices, knocking just a penny off the "yes" contract's value.
Week-over-week, the probability of Trump winning is down around two percentage points, to 54%. But on May 31, the day a jury convicted Trump of felony crimes, it lost only one percentage point.
Trump's 16-point lead over President Joe Biden on Polymarket is still much more pronounced than the polling averages. By that traditional measure, the presumptive GOP nominee is still ahead of the incumbent, but by less than a percentage point according to an aggregate produced by 270 to Win.
On PredictIt, a more mainstream betting site where trades are placed in dollars rather than stablecoins, the Trump contract actually gained 1 cent following the guilty verdict, although at 51-48 his lead over Biden is narrower and closer to the polls than on Polymarket. Unlike Polymarket, which blocks U.S. users under a regulatory settlement but has traders around the world, PredictIt is open only to Americans.
Legal experts have said that Trump is unlikely to face a prison sentence for his crime, and the market is in line with this sentiment.
On a Polymarket contract asking if Trump will go to prison, bettors are fairly confident he won't see the inside of a cell, giving a 76% probability he will serve no time; a 18% change he will get less than a year; and a 2% change he will get one to two years.
Polymarket bettors were fairly accurate when predicting the sentence for former Binance CEO Changpeng "CZ" Zhao.
CZ was sentenced (and is now serving) a four-month prison sentence. Before sentencing, the market was confident that he'd get less than a year, and more specifically, less than six months. The Department of Justice had asked for a three-year sentence, while CZ's attorneys had argued for 18 months in his plea agreement.
Rate cut wen?
Kalshi and Polymarket traders are not pricing in a rate cut, creating a stark contrast with the CME FedWatch poll, which does anticipate a cut by the fall, and gives some certainty of another by the winter.
On Kalshi, the only U.S.-regulated platform for these contracts, bettors are giving a 32% chance of zero cuts, while they are pricing in a 29% chance of one cut. "Two cuts" is coming in next at 24%.
Over at Polymarket, bettors are split between zero and two cuts, giving a 30% chance of each happening.
Economists are split on whether the Federal Reserve will lower interest rates in 2024.
Factors such as elevated inflation, a resilient economy, and a labor market that remains strong, though slightly softening, suggest that easing monetary policy may not be necessary. However, the persistence of these conditions throughout the year adds an element of doubt.
Some, like Steve Englander from Standard Chartered Bank, argue there's a chance for a July cut, citing potential slowdowns in core inflation and seasonal factors affecting current inflation readings.
The CME's FedWatch, a poll of market participants, paints a different picture.
It's targeting a 54% chance of the first rate cut occurring by the Sept. 18 meeting of the Federal Open Market Committee, and growing confidence that a second – or even third – cut will occur by December.
This divergence will be something to watch, to see if the market participants on CME's FedWatch know more than the market observers on prediction markets.