The probability of a Federal Reserve rate hike rises to 62%: Why do expectations for no rate move in July and hikes by year-end coexist?

On July 22, 2026, CME’s “FedWatch” tool data showed that the probability the Fed would keep interest rates unchanged at the July FOMC meeting was 74.9%, while the probability of cumulative rate hikes totaling 25 basis points was 25.1%. However, the same set of data pointed to a very different outlook for September: the probability of keeping rates unchanged then dropped sharply to 28.9%, the probability of cumulative hikes totaling 25 basis points rose to 55.7%, and the probability of cumulative hikes totaling 50 basis points was 15.4%.

On Polymarket’s prediction market, the cumulative size of the pool for the “Fed July decision” event has reached $787 million. The top option by market consensus is “no change,” with a win rate of about 87.25%. Meanwhile, traders are betting on a probability of about 62% that the Fed will raise rates before July 2027.

A significant divergence exists between short-term “hold steady” expectations and medium-term rate-hike expectations—meaning the market is pricing two starkly different policy outcomes at the same time. This pricing split is not a logical contradiction; it reflects a complex pattern where multiple forces are intertwined in the current macro environment.

How can short-term dovishness and long-term hawkishness coexist within the same set of market data?

The probability of holding rates steady in July ranges from as high as 74.9% to 93%—with differences across data sources mainly stemming from subtle disagreements in derivatives pricing models. But directional consensus is highly consistent: a rate hike in July is almost outside the base-case scenario. This assessment is based on the fact that June inflation data fell back more than expected. June CPI rose 3.5% year over year, below the 3.8% forecast, and core CPI was unchanged month over month. In its latest report, Goldman Sachs Chief Economist Jan Hatzius said the latest inflation data has “effectively ruled out” the possibility of a rate hike by the Fed at the July meeting.

However, the same batch of data also points to a sharply different forward picture. The Fed’s June dot plot shows that the median year-end rate for 2026 was raised from 3.4% in the March forecast to 3.8%—a figure that itself already embeds the market’s expectation of one rate hike during the year. Of 19 Fed officials, 9 believe at least one rate hike is needed this year, and 6 believe two hikes are needed. Three months ago, no official had predicted a rate hike for the year.

The tension between improved short-term data and a hawkish turn in the medium-term dot plot is the underlying logic behind the current split in market pricing.

What expectations game does the $787 million pool on the prediction market reveal?

The $787 million pool size on Polymarket makes it an important window into market expectations. Unlike CME FedWatch’s mechanical calculations based on federal funds futures, participants in prediction markets can make highly granular bets on specific events—so the flow of funds often captures subtle expectation shifts that traditional derivatives markets struggle to reflect.

At present, the “no change” option is far ahead with a win rate of about 87.25%. What is worth noting, however, is that there has recently been a single large sell-off targeting the “no change” option: a whale sold a “no change” position worth $65,736.51. This action itself does not change the status of “no change” as the benchmark scenario, but it indicates that despite a highly consistent surface-level consensus, some capital has started positioning for “unexpected” outcomes.

The capital composition in the prediction market is shifting from “what will happen in July” to “how strongly the market will react to the July outcome.” When expectations are overly concentrated, any deviation from expectations can trigger market volatility far beyond the event itself—the real focus of the battle behind the $787 million pool.

Why rate-hike expectations didn’t fall but rose after inflation cooled

After June inflation data fell back more than expected, rate-hike expectations should, in theory, have been pushed down. But in reality, the probability of a rate hike in September has continued to climb to 55.7%. This seemingly abnormal development stems from a change in the market’s structural view of inflation.

The minutes from the Fed’s June meeting were the first to list AI investment as one of the three factors pushing up inflation; the other two are the ongoing impacts of tariffs and supply chain disruptions caused by the closure of the Strait of Hormuz. New York Fed President John Williams said plainly that what he cares about most is the demand growth brought by AI—if this demand continues to push inflation higher, the Fed may be forced to raise rates.

At the same time, geopolitical tensions in the Middle East have escalated again and oil prices have broken above $90, further reinforcing expectations that inflation will remain sticky. The market is starting to realize that an improvement in month-to-month inflation data in June may not necessarily mean a fundamental reversal of the inflation trend. Speaking at a congressional hearing, Fed Chair Christopher Waller said directly, “Some people may say the job is done—I don’t see it that way.” This hawkish statement, combined with structural inflation factors, has jointly driven medium-term rate-hike expectations to continue heating up.

Why risk assets still rebound even as rate-hike expectations rise

On July 22, Bitcoin traded around $66,000, rebounding about 15% from its July low. Meanwhile, the S&P 500 closed at 7,509.20, and the Nasdaq closed at 25,837.21. Risk assets maintained their rebound despite rising rate-hike expectations—an outcome that itself directly reflects the market’s pricing split.

The market’s main trading logic right now is “no rate hike in July”—cooling inflation data continues to support risk-asset sentiment. US spot Bitcoin ETFs saw net inflows for the fifth consecutive trading day, totaling about $727 million over five days. Continued inflows from institutional capital provide substantive buy-side support for Bitcoin.

But the sustainability of this rebound faces a test. The yield on the two-year US Treasury has been pushed to a 17-month high of 4.278%. The probability of the Fed raising rates again this year has risen back to 55%–60%. The rebound in short-end Treasury yields, combined with Bitcoin’s lack of yield/interest attributes, creates a phase of valuation pressure tied to expectations of tighter liquidity. The market is currently pricing two different futures—near-end easing versus far-end tightening—and asset prices are searching for equilibrium amid the tug-of-war between these forces.

Differential sensitivity across crypto asset categories to the rate-hike cycle

There are significant differences in how rate-hike expectations affect different crypto asset categories, and this differentiation itself forms an important layer of investment logic.

Bitcoin, as the most liquid asset in the crypto market, is the most sensitive to macro policy. Data shows that in the first half of 2026, Bitcoin’s correlation with the US dollar index was about -0.85. On July 22, the US dollar index closed at 101.19. Geopolitical tensions and rising Treasury yields drove the dollar higher, creating direct pressure on Bitcoin.

Ethereum and other major altcoins show a “dual transmission” characteristic: they are influenced both by liquidity expectations and by the arbitrage relationship between DeFi lending rates within their ecosystems and US Treasury yields. When US Treasury yields rise, the relative appeal of on-chain stablecoin lending tends to decline, which may dampen activity in the DeFi ecosystem. Stablecoin issuers may benefit from higher reserve yields, creating a policy-sensitivity direction that is entirely different from that of speculative assets.

This differentiation means that a rise in rate-hike expectations is not a one-way shock to all crypto assets—assets in different tracks face distinct risk-reward structures across the policy cycle.

Three scenarios for the Fed’s policy path

Based on the current data, three main scenarios for the Fed’s policy path can be inferred:

Base scenario (highest probability): Hold rates unchanged in July, start rate hikes of 25 basis points in September, and complete one rate hike before year-end. This scenario closely matches the median prediction in the current dot plot (3.8% for year-end 2026). The market is pricing this in— the probability of a 25-basis-point hike in September is already 55.7%.

Hawkish scenario: Hold steady in July, but raise rates by 25 basis points in both September and December, for a total of 50 basis points of hikes across the year. Six Fed officials expect more than one hike—this scenario’s probability is about 15.4% (corresponding to the probability of cumulative 50-basis-point hikes in September). If inflation data continues to run above expectations or geopolitical conflicts further push up oil prices, the likelihood of this scenario would rise significantly.

Dovish scenario: Keep rates unchanged throughout the year. Seventy-eight economists (75% of respondents) expect the Fed will not adjust rates before year-end. This scenario requires inflation to continue improving in subsequent data and geopolitical risks not to escalate further.

The probability distribution across the three scenarios is already changing dynamically— the FOMC statement on July 29, the June core PCE data released at the end of July, and subsequent geopolitical developments will all act as catalysts driving probability reallocation.

Summary

The market is currently in a rare pricing split: holding rates unchanged in July has become highly consensus, yet expectations for rate hikes by year-end are rising in parallel. This split is not a market failure; it is a rational reflection of a scenario where short-term improvement in inflation data and medium-term structural inflation pressures coexist. The difference between CME FedWatch’s 74.9% and Polymarket’s 87.25%, along with the expectation battle hidden within the $787 million pool, together form key clues to understanding the current market pricing logic.

For participants in the crypto market, understanding the significance of this pricing split means: policy certainty near-term and policy uncertainty far-term will both affect asset prices. The “no change” outcome of the July FOMC meeting may already be fully priced in itself, but any hints in the statement regarding the future path—and the inflation and employment data released afterward—could become key variables driving the market’s direction in the next phase.

FAQ

Q: Why do CME FedWatch’s 74.9% and Polymarket’s 87.25% differ?

They use different pricing models and data sources. CME FedWatch mechanically calculates based on federal funds futures prices, while Polymarket is a prediction market where participants directly bet on specific event outcomes. The difference between them reflects how the derivatives market and the prediction market differ in pricing mechanisms and participant structure.

Q: With the probability of no rate hike in July so high, why still focus on rate-hike expectations?

Because the market is pricing the “difference in expectations,” not the “current reality” itself. The probability of a rate hike in September is already 55.7%, meaning the market is already pricing policy tightening by year-end. Even if there is no rate hike in July, the continued rise in rate-hike expectations will transmit to risk assets through channels such as Treasury yields and the US dollar exchange rate.

Q: Does rising rate-hike expectations necessarily mean bad news for crypto assets?

Not necessarily. Rising rate-hike expectations pressure crypto assets through two paths: a stronger dollar and higher risk-free rates. But sensitivities differ markedly across asset categories—Bitcoin, the asset most sensitive to liquidity, gets hit the most, while stablecoin issuers may even benefit from higher reserve yields. Additionally, if the market has already priced in the rate-hike expectations sufficiently, when the actual hikes land, there may be a reversal consistent with “bad news is already priced in.”

Q: What is the next key time node to watch?

The FOMC meeting on July 28–29 is the most recent policy node. Any change in wording in the statement about the future interest-rate path could trigger the market to reprice. In addition, the June core PCE data released at the end of July, as well as subsequent CPI and employment data, will provide key input for the September meeting’s policy decision.