Research Note: Macro & Rates Desk - Event Horizon Analysis

Key Takeaways

• Market assigns a 50% chance to a historically unprecedented event (Trump 2025 exit), suggesting high risk premium.
• Monetary policy expectations are strikingly stable into 2026 (96% prob of hold), creating tension with political volatility.
• Fed Chair succession (Hassett 38%) is a direct derivative of election outcome, with current pricing potentially under-correlated.
• Recession (2%) and Bitcoin hyper-bull (1%) tails are priced as remote, offering cheap convexity.
• High volumes in long-dated sports markets indicate prediction markets' expanding scope as an asset class.

Executive Summary

Current prediction market data reveals a landscape dominated by significant political uncertainty juxtaposed against expectations for profound monetary policy stability. The centerpiece is a 50% implied probability that Donald Trump departs office before the end of 2025, a seismic political risk premium that overshadows other markets. Concurrently, markets price near-certainty (96%) that the Federal Reserve will hold rates steady in January 2026, reflecting a "higher-for-longer" consensus that extends beyond the current cycle. Fed leadership speculation is active, with a 38% chance Kevin Hassett becomes Trump's next Fed Chair nominee. Recession risks for 2025 are priced at a mere 2%, while extreme Bitcoin price outcomes (>$130k) are seen as 1% probability events. This note analyzes the tensions between these probabilities, identifies mispricings, and outlines actionable trade structures.

1. Political Risk: The Trump Exit Conundrum

Market: Donald Trump out this year? (50.0%, $9.8M Volume)

The 50% probability is the single most significant data point across our coverage universe, implying a literal coin flip on a constitutional event within the next 12 months. This volume-heavy market suggests deep institutional and retail engagement.

Historical Context & Analysis: Historical precedent for a presidential exit outside of an election is vanishingly rare. Modern markets have never priced such a high probability for an early departure outside of acute health crises. The 50% level likely synthesizes several non-mutually exclusive risk vectors: health (given the candidate's age), legal (conviction leading to political incapacitation or resignation), and political (invocation of the 25th Amendment in a contentious second term). The market appears to be assigning a material probability to scenarios beyond simple electoral defeat in November 2024, as that outcome would see him exit in Jan 2025, fitting the 'this year' (2025) scope.

Actionable Insight & Trade Structuring:

• Asymmetry Alert: The 50% base rate is likely inflated by tail-risk hedging and narrative-driven retail flow. A more calibrated fundamental probability might sit in the 15-25% range, encompassing genuine risk of health or acute constitutional crisis.
• Trade Idea (Relative Value): This market offers a volatility hedge against a portfolio of other Trump-correlated positions. For instance, being long this 'Trump Exit' volatility could partially hedge a long position in 'Trump nominate Hassett' or other policy markets.
• Catalyst Watch: Key resolution catalysts are not evenly distributed. A conviction in pending criminal trials (e.g., NY hush money, Jan 6-related) could see this probability spike to 70%+. Conversely, electoral victory in November 2024 and a clean bill of health in Q1 2025 could crush probabilities to 20% or lower by Q2 2025.

2. Monetary Policy: A Plateau of Certainty

Markets: Fed Hike 0bps in Jan 2026 (96.0%), Powell Leaves Before 2026 (1.0%), Will the Fed cut rates 2 times? (6.0%), Recession in 2025? (2.0%)

These markets paint a cohesive, yet potentially complacent, picture of the monetary policy horizon.

The Hold Consensus: The 96% probability of a hold in Jan 2026 is striking for its distance (22 months forward) and conviction. This implies markets see the easing cycle, once concluded, as leading to a sustained plateau with virtually no risk of a quick re-tightening. It is a direct bet against 'stop-and-go' policy.

Leadership Stability: The 1% probability on Powell's early departure is paradoxically low given the 50% Trump risk. Historically, new Presidents seek to appoint their own Fed Chair. A Trump victory would make Powell's term expiration (May 2026) a natural change point, but an early resignation under pressure is a non-zero risk. The 1% pricing seems disconnected from the political risk market.

Limited Easing, Vanishing Recession Risk: The mere 6% probability of two cuts (50bps) in 2025, coupled with a 2% recession risk, suggests a 'soft landing' is now the base case, with limited further easing expected. This aligns with recent Fed communications but leaves little room for error.

Actionable Insight & Trade Structuring:

• Inconsistency Identification: The dichotomy between high political volatility (Trump 50%) and extreme monetary policy stability (Powell 1%) is analytically inconsistent. A Trump victory should increase the probability of a Powell early exit or non-renomination.
• Trade Idea (Calendar Spread on Fed Volatility): Consider structuring a position that is long near-term Fed policy volatility (via markets on 2024/25 meetings) and short the Jan 2026 volatility, betting the current long-dated certainty is overpriced.
• Catalyst Watch: The November 2024 election is the primary catalyst for repricing Powell exit risk. Any signal from Trump regarding Fed Chair intentions will directly impact both the 'Powell Leaves' and 'Hassett Nomination' markets.

3. Fed Chair Succession: The Hassett Play

Market: Will Trump next nominate Kevin Hassett as Fed Chair? (38.0%, $5.0M Volume)

This is the most specific and actionable political-policy crossover market.

Analysis: Kevin Hassett, former Trump CEA chair and a known economist with dovish leanings, is priced as the frontrunner. A 38% probability in a field of potential candidates (including Judy Shelton, John Taylor, or even a Powell re-nomination) indicates he is the consensus hedge. The volume indicates serious positioning.

Actionable Insight & Trade Structuring:

• Correlation Trade: This market is a derivative of the 'Trump Exit' and 'Trump Wins 2024' markets. Its 38% level likely embeds an assumption of a Trump victory. A simple arbitrage does not exist, but the probability should be monitored against general election betting odds.
• Scenario Analysis: If Trump wins and Powell does not leave early, the nomination event may not occur before the Jan 20, 2029 resolution deadline, potentially causing a 'No' outcome. Traders must model the timing pathways.
• Trade Idea (Pair Trade): Go long 'Hassett Nomination' and short 'Powell Leaves Before 2026' if you believe a Trump victory leads to a swift announcement for a new Chair, making both events occur. The current pricing (38% vs 1%) suggests this correlation is underappreciated.

4. Asset Classes: Bitcoin & Sports as Volatility Proxies

Markets: Bitcoin >$130k (1.0%), Bitcoin >$150k (1.0%), Philadelphia Eagles 2026 Championship (10.0%), LA R 2026 Championship (14.0%)

Bitcoin's Asymmetry: The 1% probability for both $130k and $150k thresholds is instructive. It shows the market assigns a near-zero chance of a >2x move from current ~$60k levels within 2025. This is a bet against a hyper-bullish macro or adoption shock. Given Bitcoin's historical volatility, this seems low, but may reflect a maturation narrative.

Sports Markets as Liquidity Sinks: The significant volume in NFL championship markets ($5.6M and $4.2M) is notable. The Eagles (10%) and LA R (14%, likely the Rams) are priced as contenders, not favorites. This high volume in long-dated sports events highlights prediction markets' expanding role for pure alpha generation outside traditional finance, absorbing liquidity that might otherwise target political or policy markets.

Actionable Insight:

• Bitcoin as a Hedge: The extreme cheapness of the Bitcoin call option (>$130k) could serve as a low-cost, high-convexity hedge against a sudden dovish Fed pivot combined with dollar weakness. At a 1% cost, it offers asymmetric payoff potential.
• Sports vs. Macro Correlation: These high-volume sports markets demonstrate that event risk trading is diversifying. For desks with risk capacity, these markets can provide uncorrelated returns, though their analytical frameworks differ fundamentally from macro analysis.

5. Key Risk Factors & Catalysts

Primary Catalysts (Chronological):

1. Q2-Q4 2024 - Trump Legal Trials: Verdicts could dramatically reprice 'Trump Exit 2025' probability.
2. November 5, 2024 - US Election: The supreme catalyst. Will reset probabilities for 'Trump Exit', 'Hassett Nomination', 'Powell Leaves', and Fed policy paths.
3. Q1 2025 - Inauguration & Early Governance: Signals on Fed Chair intentions, initial economic policies.
4. Throughout 2025 - Economic Data: Any sharp deviation from the 'soft landing' path (2% recession prob) will force a violent repricing of Fed cut trajectories and challenge the 96% 'hold in Jan 2026' certainty.

Systemic Risks:

• Complacency in Macro Risks: The stark divergence between political and policy stability probabilities suggests one set of markets is wrong. A volatility spike in one domain will likely spill into the other.
• Liquidity Fragmentation: High volume in sports indicates potential liquidity diversion from core macro markets during crisis periods.
• Resolution Clarity: Political markets, especially involving 'exit' conditions, face non-trivial resolution risks (e.g., defining 'leaves office'), which could lead to disputed outcomes.

6. Conclusion and Recommended Actions

The current prediction market landscape presents a paradox: extreme near-term political uncertainty coexists with profound long-term monetary policy stability. This discrepancy is the central trading opportunity.

Top Recommendations for the Desk:

1. Exploit the Political-Policy Disconnect: Structure relative value trades that short the longevity of Powell (1%) against a basket of Trump victory/exit probabilities. The pricing is logically inconsistent.
2. Treat the 50% Trump Exit as a Volatility Gauge: Use this market as a high-beta hedging tool for a broader Trump-related political risk portfolio, not necessarily as a pure directional bet at current levels.
3. Prepare for Correlation Shifts: The near-zero correlation priced between political and Fed leadership risk is unlikely to hold. Position for a positive correlation spike post-election.
4. Allocate to Asymmetric Tails: The 1% Bitcoin and 2% recession probabilities offer cheap convexity for portfolio protection against outlier shocks.
5. Monitor Liquidity Flows: The volume in sports markets, while non-macro, is a signal of platform engagement and potential crowding. Be mindful of liquidity conditions in core macro markets during major sporting events.

In summary, the market is offering compelling mispricings at the intersection of politics and central banking. The primary axis of repricing will be the November 2024 election, after which the current bifurcated volatility regime will likely collapse into a more coherent, and likely more volatile, narrative.

Market Analysis

Trump Exit 2025 📉

Current Probability: 50.0%

Likely overpriced relative to historical base rates, but functions as a high-beta political volatility index. Key hedge for election-related portfolios.

Fed Hold Jan 2026 ➡️

Current Probability: 96.0%

Priced for perfection in a 'higher-for-longer' soft landing. Highly vulnerable to any 2025 economic slowdown or political pressure for easier policy.

Hassett Fed Chair Nom 📈

Current Probability: 38.0%

The clear frontrunner in a Trump scenario. Probability likely embeds a ~60-70% conditional chance given a Trump win. Directly tied to Powell exit probability.

Recession 2025 ➡️

Current Probability: 2.0%

Priced for near-certain avoidance. A cheap hedge against the Fed hold narrative. Any negative GDP print would cause a massive probability spike.

Bitcoin >$130k 📈

Current Probability: 1.0%

Extreme tail priced cheaply. A pure volatility/ adoption bet with high asymmetry. Low cost allows for strategic position sizing.