Odds On: Three Fed rate cuts most likely in 2025, prediction markets say

“Odds On” is The Fly’s weekly series diving into the most interesting bets on events trading platforms like Polymarket, Kalshi, and Robinhood. Subscribers, add $EBET to your Fly portfolios for alerts on news about events trading.

BACKGROUND: The Federal Reserve’s policy in 2025 has been marked by a gradual pivot from restraint to cautious accommodation. After holding interest rates steady through the early months of the year, the Fed began cutting in September, lowering the federal funds rate by 25 basis points as signs of labor market softening and slower consumer spending started to surface. Another 25-basis-point cut followed in October, bringing the benchmark range down to 3.75%-4%. Chair Jerome Powell emphasized that future cuts are not guaranteed, noting that inflation remains above target and that the Fed’s decision-making is being hampered by gaps in economic data caused by the ongoing government shutdown. Beyond rate policy, the Fed has moved to wind down its balance sheet runoff, with quantitative tightening set to end December 1. This step effectively halts one of the more restrictive elements of monetary policy and is meant to ensure liquidity remains steady as markets adjust to lower rates. Still, Powell and other policymakers have cautioned that the Fed’s dual mandate remains in tension as unemployment is inching up while inflation has yet to convincingly return to 2%, creating a narrow and uncertain policy corridor. The remainder of 2025 will likely see the Fed adopt a wait-and-see stance. Another rate cut in December remains possible, but is far from assured. Instead, the central bank may choose to pause and assess how its recent actions filter through the economy. The lack of official government data on inflation and jobs has forced policymakers to rely on private indicators, which could lead to short-term volatility in expectations. Markets are currently leaning toward a mild easing bias, but any unexpected rebound in inflation or deterioration in the labor market could quickly change that outlook.

THE BET: Polymarket has the prop of “How many Fed rate cuts in 2025?” with a total volume of $22M. There are currently three markets with greater than 1% chance of happening. The options are as follows:

• two cuts/50 basis points (volume $2.34M)
• three cuts/75 basis points (volume $2.55)
• four cuts/100 basis points (volume $2.61)

Traders on Polymarket are pricing in a 33% chance of two cuts in 2025. The “Yes” contract was last trading at 34c, while the “No” contract stood at 69c. Markets are assigning a 66% chance of three cuts this year. The “Yes” contract was last trading at 66c, while the “No” contract stood at 35c. According to Polymarket, there is a 1% chance of four cuts in 2025. The “Yes” contract was last trading at 1.3c, while the “No” contract stood at 98.8c.

Meanwhile on Kalshi, the company provides the market of “Number of rate cuts in 2025?” with a total volume of $15.27M. The three bets with a greater than 1% chance of happening are:

• exactly two cuts/50 basis points
• exactly three cuts/75 basis points
• exactly four cuts/100 basis cuts

Traders on Kalshi are pricing in a 30% chance of exactly two cuts in 2025. The “Yes” contract was last trading at 32c, while the “No” contract stood at 71c. Markets are assigning a 68% chance of exactly three cuts this year. The “Yes” contract was last trading at 69c, while the “No” contract stood at 32c. According to Kalshi, there is a 2% chance of exactly four cuts in 2025. The “Yes” contract was last trading at 3c, while the “No” contract stood at 98c

THE RULES: Polymarket states that 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 meetings. Note that cuts between 1-24 bps will also be considered one rate cut.