Regarding "Firing Powell": the prediction market listens to Trump, while the interest rate market listens to Bostic.

Prediction markets like Polymarket have raised the odds of "Powell being dismissed this year" due to Trump's radical remarks, while the interest rate market is more focused on economic data and policy signals.

Written by: Long Yue

Source: Wall Street Observer

Despite the growing rumors of Trump firing Federal Reserve Chair Powell, the two major "barometers" of the financial market are sending completely different signals.

Data shows that there is a significant divergence between the prediction market and the interest rate market regarding Powell's future. The latest development is that Wall Street Journal reported that Powell will be interviewed on July 16 (Wednesday), and Trump has drafted a termination letter. This news has once again pushed up the betting odds on the prediction market platform Polymarket regarding "Powell being dismissed in 2025."

However, the level of concern in the interest rate market regarding Powell's early departure is significantly lower than the probability indicated by the Polymarket betting platform. The rates market refers to the interest rate derivatives market, particularly the federal funds futures market, which reflects expectations for future Federal Reserve interest rates through trading prices.

Specifically, after the release of stronger-than-expected employment data in the United States, the interest rate market actually reduced its bets on rate cuts. Currently, the interest rate market expects the Federal Reserve to cut rates by 43 basis points by the end of the year, while the rate cut was 67 basis points as of the end of June. More importantly, U.S. Treasury Secretary Basent previously revealed in an interview that he did not fully support President Trump's sharp comments on the Federal Reserve, and his more moderate statement provided a stabilizing anchor for the interest rate market.

As a result, participants in the prediction market continue to reinforce Trump's "firing comments," while traders in the interest rate market choose to believe Bostic's cautious stance and the economic data showing that inflation still poses an upside risk.

The chart shows the divergence trend of the Intrerest Rate market and prediction market

Market divergences are widening

In fact, the prediction market and the interest rate market have started to diverge since the beginning of July.

Before early July, the implied probability of interest rate cuts in the futures market was basically consistent with the odds on Polymarket regarding Powell's dismissal. However, this synchronous relationship was broken on July 2.

On July 2, Trump publicly demanded Powell's resignation, causing related betting odds on Polymarket to rise. However, at the same time, the short-term interest rate market was basically unaffected. In addition, the employment data released on July 3 was stronger than expected, leading to a sell-off in the interest rate market as traders began to lower their expectations for interest rate cuts. On the same day, Treasury Secretary Basant, in an interview, refused to fully endorse Trump's comments regarding the Federal Reserve. His statement further reinforced the market's cautious sentiment. Subsequently, the two curves headed in different directions.

According to Bloomberg macro strategist Simon White, prediction markets typically use political rhetoric as a barometer, while the interest rate market is more focused on economic fundamentals and policy signals.

Intrerest Rate市场定价逻辑：数据与信号优先

The performance of the interest rate market clearly indicates that traders tend to filter out political "noise" and focus on economic "signals." Recent employment data in the U.S. suggests that economic resilience remains, and inflation faces upward risks, which directly undermines the rationale for the Federal Reserve to significantly cut interest rates in the short term.

Data shows that the interest rate market currently expects the Federal Reserve to cut rates by 43 basis points before the end of the year, which is much lower than the 67 basis points predicted at the end of June.

The core driving force behind this change, aside from economic data, is the stance of Treasury Secretary Basent. As a key figure connecting the White House and financial markets, his more moderate comments have been interpreted by the market as an important signal of policy continuity, easing Trump's harsh rhetoric.

But strategist Simon White pointed out that if any market participants believe that Trump's political will will ultimately prevail and successfully install a more "dovish" Federal Reserve chairman, then Polymarket's odds might be closer to the truth.