Everyone — from Vegas casinos to online startups DraftKings and PredictIt — is accepting bets for who will be the Fed’s next chair.
By Dave Allen for Discount Gold & Silver
Everyone — from Vegas casinos to online startups DraftKings and PredictIt — is accepting bets for who will be the Fed’s next chair.
As Axios' Kate Marino puts it, the explosion in retail trading “is one sign of the flush consumer's betting fervor.”
The fever rush to wager on political outcomes — like whether Jerome Powell gets another term as Fed chair — is another.
Statistics from PredictIt show that trading activity for the next Fed chair is double what it was the last time there was a similar market on the political trading platform that's closely watched by traders and investors alike.
Last time was in 2017, when then-Fed chair Janet Yellen was up for renomination.
Then, Powell led the betting market — although Kevin Warsh was ahead just a few days earlier.
PredictIt — and other sites like it — aren't always right. In fact, they’re wrong more often than not.
But their probabilities are valuable in real time, because as Bianco Research’s Jim Bianco sees it, they "distill the consensus into a single number" — and Americans sure do like easy numbers.
Going into today, PredictIt shows a 76% chance of Powell being confirmed by the Senate — down from a high of 90% on September 12, although up from a 61% chance in late September (the chart above is from Thursday, when Powell was at 73%).
Those chances fell 15 percentage points a little more than two weeks later, on the 28th, the day after Robert Kaplan and Eric Rosengren announced they were leaving the Fed as regional presidents over trading scandals.
On October 7th, PredictIt put the odds of a Powell renomination at 69%.” At the same time, the odds that Fed Governor Lael Brainard will be nominated have tripled to 18% from a low of 6% in September.”
So, going into the weekend, buying in on Powell's renomination costs $76.00 on PredictIt.
If you're right, and he’s selected by Biden and confirmed by the Senate, you win $100.00.
Put another way, PredictIt’s guessing market sees a 76% chance that Powell will get another four years as Fed chair. His separate 14-year term as a member of the Fed Board of Governors ends January 31, 2028.
The Commodity Futures Trading Commission has strict rules for political trading platforms like PredictIt, which fall under the regulator’s jurisdiction.
For instance, a single bettor can only put up to $850 on a single contract — a "yes" or "no" on a certain political outcome (e.g., will Powell be renominated as Fed chair?).
And just 5,000 people can hold shares in any contract at one time. Thus, mega bets on the next Fed chair aren't happening on PredictIt.
That happens indirectly elsewhere, according to Courtenay Brown — like interest rate futures.
Who Is Powell Anyway?
As an aside, Powell has served as a member of the Federal Reserve Board since May 2012 (when he was appointed to fill an unexpired term). He was reappointed to the Board for a full term in 2014 by President Obama.
Before his appointment to the Board, Powell was a visiting scholar at the Bipartisan Policy Center, where he focused on federal and state fiscal issues.
From 1997 through 2005, Mr. Powell was a partner at The Carlyle Group — a publicly-traded hedge fund listed on NASDAQ that today has $276 billion total assets under management.
Prior to that, Powell served as an Assistant Secretary of the Treasury Department under President George H.W. Bush, and he worked as a lawyer and investment banker in New York City earlier in his career.
As I mentioned earlier, betting contracts on Powell's reappointment are off their recent highs.
Despite opposition in Washington that’s been growing since the scandal over Kaplan and Rosengren’s financial holdings and stock trades, and with progressives complaining about wealth inequality having grown under Powell’s watch, who knows what Biden’s thinking?
As I noted above, contracts on Lael Brainard, who currently serves on the Fed board, have spiked. But they’re still low relative to people who believe it’s much more probably that Biden will reappoint Powell.
Jens Nordvig, founder of Exante Data, says, “There are times when what’s going on in prediction markets doesn’t seem totally consistent with other (broader) markets where people are putting billions of dollars to work.”
In the case of the Fed chair, though, he added, “people’s probabilities have shifted, and that’s reflected in PredictIt — and also reflected in how people think about what are the risks to interest rates.”
Biden’s announcement in the coming weeks will end all the intrigue, but it will only put winnings in the pockets of prediction market traders when the Senate OKs his pick.