Donald J. Trump is the first U.S. president, former or otherwise, to be convicted in criminal court. However, prediction markets show that this unprecedented event had little impact on his chances of winning the presidency again. For those unfamiliar, prediction markets operate by allowing bets on specific outcomes, with correct predictions earning $1 per contract. The value of a contract represents the probability of the outcome occurring; for example, a contract worth 40 cents suggests a 40% chance of that outcome.
Trump's probability of winning has decreased by about two percentage points to 54% over the past week. On May 31, the day of his conviction, it dropped by only one percentage point. Trump maintains a 16-point lead over President Joe Biden on Polymarket, significantly higher than traditional polling averages. According to an aggregate from 270 to Win, the GOP nominee leads the incumbent by less than a percentage point.
On PredictIt, a more conventional betting platform that uses dollars instead of stablecoins, Trump's contract gained 1 cent post-verdict, showing a 51-48 lead over Biden, which aligns more closely with traditional polls than Polymarket. PredictIt, unlike Polymarket, is available only to American users. Legal experts suggest Trump is unlikely to serve a prison sentence for his crime, a sentiment reflected in the market.
A Polymarket contract indicates a 76% chance that Trump will not serve time; 18% believe he will serve less than a year, and 2% believe he will serve one to two years. Polymarket bettors accurately predicted a four-month sentence for former Binance CEO Changpeng "CZ" Zhao, who is currently serving time. Before sentencing, the market confidently predicted he would receive less than a year, specifically under six months. The DOJ had requested a three-year sentence, while Zhao's lawyers argued for 18 months.
Will there be a rate cut? Kalshi and Polymarket traders do not anticipate a rate cut, contrasting sharply with the CME FedWatch poll, which predicts a cut by fall and possibly another by winter. Kalshi, the only U.S.-regulated platform for these contracts, shows a 32% chance of no cuts and a 29% chance of one cut. Two cuts have a 24% probability. At Polymarket, bettors are split between zero and two cuts, each with a 30% chance.
Economists are divided on whether the Federal Reserve will lower interest rates in 2024. Factors like persistent inflation, a robust economy, and a strong but slightly weakening labor market suggest that easing monetary policy may not be necessary. Yet, the continuation of these conditions throughout the year introduces uncertainty. Steve Englander from Standard Chartered Bank sees a potential July cut, citing possible slowdowns in core inflation and seasonal factors affecting inflation readings.
The CME's FedWatch, a market participant poll, indicates a 54% chance of the first rate drop by the September 18 FOMC meeting, with increasing confidence in a second or third cut by December. The discrepancy between CME's FedWatch participants and prediction market observers will be noteworthy to track.
While some analysts believe that a rate cut may be necessary to stimulate economic growth, others argue that the economy is still strong enough to withstand current conditions. This divergence of opinion can be seen in how different markets, like Polymarket, Kalshi, and CME, respond to economic indicators, much like how ETH price fluctuations are influenced by varying market sentiments and external factors. It will be interesting to see how the Federal Reserve responds to the potential slowdown in core inflation and whether it will take action to prevent a further economic downturn. Ultimately, the decision to cut rates will depend on a variety of factors, including future inflation readings and overall economic data.
