Regarding "Firing Powell": The prediction market listens to Trump, while the interest rate market listens to Bessenet

Despite the escalating rumors of Trump firing Federal Reserve Chairman Jerome 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 Powell will be interviewed on July 16 (Wednesday), and Trump has drafted a dismissal 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 interest rate market shows a significantly lower level of concern about Powell's early departure compared to the probabilities indicated by the Polymarket betting platform. The interest rate market refers to the interest rate derivatives market, especially the federal funds futures market, which reflects expectations for future Federal Reserve rates through trading prices.

Specifically, after the release of stronger-than-expected employment data in the U.S., the interest rate market actually reduced 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, down from a rate cut expectation of 67 basis points at the end of June. More critically, U.S. Treasury Secretary Janet Yellen previously revealed in an interview that she does not fully support President Trump's sharp comments on the Federal Reserve, and her more moderate stance provides a stabilizing anchor for the interest rate market.

As a result, participants in the prediction market continue to reinforce Trump's "dismissal remarks," while traders in the interest rate market choose to trust Yellen's cautious position and economic data that still show upward inflation risks.

(The chart shows the divergence between the interest rate market and the prediction market)

Market Divergence is Widening

In fact, the prediction market and the interest rate market have been diverging since early July.

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

On July 2, Trump publicly demanded Powell's resignation, and the related betting odds on Polymarket subsequently rose. However, at the same time, the short-term interest rate market was largely unaffected. Additionally, the employment data released on July 3 was stronger than expected, leading to a sell-off in the interest rate market, and traders began to lower their expectations for rate cuts. On the same day, Treasury Secretary Yellen, in an interview, refused to fully endorse Trump's comments about the Federal Reserve. Her statement further reinforced the market's cautious sentiment. Since then, the two curves have moved in different directions.

According to Bloomberg macro strategist Simon White, the prediction market typically uses political rhetoric as a weather vane, while the interest rate market pays more attention to economic fundamentals and policy signals.

Interest Rate Market Pricing Logic: Data and Signals First

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 from the United States 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 significantly lower than the 67 basis points predicted at the end of June.

The core driver of this change, aside from economic data, is the stance of Treasury Secretary Janet Yellen. As a key figure connecting the White House and financial markets, her more moderate remarks have been interpreted by the market as an important signal of policy continuity, easing the harsh rhetoric from Trump.

However, strategist Simon White points out that if any market participants believe that Trump's political will will ultimately prevail and successfully install a more "dovish" Federal Reserve chair, then the odds from Polymarket may be closer to the truth